The sell-side support for Deere & Co (NYSE: DE) is high and rising and may help drive the stock to a new all-time high. The institutional activity alone suggests the stock will move higher as it has been bullish for 3 of the last 4 quarters and netted about 2.3% of the market cap. This has the total ownership up to over 75% and rising, a figure that will continue to support the price action if not drive it upwards. The largest owners include Vanguard, BlackRock, State Street and JPMorgan Chase which all command large followings of retail investors as well.
The analyst activity is what has the stock moving higher as well. The analysts rate the stock a Moderate Buy and have been steadily raising their price targets over the last year. Activity in November includes 13 major analyst reports that include 13 higher price targets that have the stock trading well above the current consensus estimate. As it is, the consensus estimate is up 15% over the last year and 11% in the last 30 days but is still only in line with the price action near $450 so may move higher in the short to mid-term.
Deere & Company Plow To New Highs On Strong Outlook
Deere & Company stock set a new high already, one that was sparked by the strong Q4 earnings release and outlook for 2023. The company not only reported a 39.6% increase in revenue but it beat the consensus estimate by 650 basis points and the bottom line strength was much stronger. The top-line strength was driven by gains in all segments that were led by the core Production and Precision Agriculture segment. Sales in that segment were up 59% and were coupled with a 124% increase in operating margin. The operating margin improvement was driven by volume, mix and price increases there were partially offset by higher input costs.
Moving down to the earnings, the company reported a 75% increase in the operating margin which has the operating income near $2.25 billion. This drove GAAP EPS of $7.44 which is up from last year’s $4.12 and 480 basis points better than expected and the strength is expected to carry into next year. The company is guiding its 2023 operating income to a range of $8.0 to $8.5 billion which equates to a 9.5% increase in earnings assuming no change in the share count. That should put the full-year GAAP EPS above $30 compared to the consensus of $29 which is a catalyst for higher share prices.
Deere Is Returning Capital To Shareholders
Deere & Company pays a healthy dividend but it does not come with a high yield relatively speaking. The stock is yielding about 1.0% with shares near $440 but it is a safe 1% and a distribution that is growing. The company doesn’t raise the distribution every year but it does most years and has only increased the payout over the last 30-odd years. The buybacks, however, may be more important in 2023 as they have ramped up over the last 2 to 3 years. Assuming the company continues to buy back stock at the billion-dollar quarterly pace it has set in 2022 the stock should continue to trend higher.
Turning to the chart, the stock is wrestling with an all-time high right now. There is resistance at the previous all-time high, near $440, but it may not last. If the stock can get above this level a move up to the $500 to $520 region may follow. If not, this stock may return to support near $400 or lower until there is more clarity in the outlook for 2023.