Deere Stock is Red-Hot as Earnings Loom

Deere stock nearly tripled in the last year

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Deere & Company (NYSE:DE) is an agriculture and construction technology manufacturer. The American icon will step into the earnings confessional tomorrow morning, Feb. 19, before the bell opens. Ahead of the event, DE is down 0.7% at $310.10.

Since a March 18 three-year bottom near $106, DE has ripped off a torrid run of higher highs, culminating in a Feb. 16 record high of $321.67. Along the way, the share's 30-day moving average has contained most if not all pullbacks, including a 1.9% post-earnings dip on Nov. 25.  

DE Stock Chart

Looking ahead to tomorrow, analysts project DE will report an earnings per share (EPS) of $2.14 for its upcoming earnings report. In the last eight quarters, Deere has averaged a post-earnings move of 4.1%, regardless of direction. 

Even though earnings are looming, premium can be had for relatively cheap at the moment, too. The stock's Schaeffer's Volatility Index (SVI) of 39% stands higher than 19% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment.  Plus, the equity's Schaeffer's Volatility Scorecard (SVS) sits at 75 out of 100, indicating DE has surpassed option traders' volatility expectations during the past year.

The company’s consistent growth history have served as the major catalysts for Deere stock's recent growth. Over the past year, Deere revenue was down by about $3.7 billion and its net income fell by $500 million. However, prior to the pandemic, DE had an incredible growth rate for both its top and bottom line profits. Between 2017 and 2019 Deere added nearly $10 billion in revenue, marking over a 30% increase. In the same time frame, Deere also increased net profits by roughly $1.1 billion.

The biggest fundamental negative marks for Deere are its huge debt load of $46.39 billion and its seemingly high price-earnings ratio of 35.91. DE has a forward price-earnings is 24.94. However, as Deere continues to recover from the pandemic losses, those figures will likely settle at a much more reasonable value. Deere stock also offers a forward dividend of $3.04 and a dividend yield of 0.96%.

Overall, Deere's current value is justifiable, but there may not be much room for DE to continue growing in the short-term. Now may be a good time for current investors to sell around peak stock pricing.


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