Is Deere Stock Fully Valued At $380?

Deere (NYSE: DE) recently reported its Q3 fiscal 2024 results (fiscal ends in October), with revenues and earnings exceeding the street estimates. The company reported equipment revenue of $11.8 billion and earnings of $6.29 per share, compared to the consensus estimates of $10.9 billion and $5.68, respectively. Following the Q3 beat, DE stock popped 7% higher to levels of around $380 now. However, we think that DE stock is fully priced and investors willing to pick it will likely be better off waiting for a dip.

DE stock has seen strong gains of 50% from levels of $255 in early January 2021 to around $380 now, vs. a similar change for the S&P 500 over this period. However, the increase in DE stock has been far from consistent. Returns for the stock were 29% in 2021, 27% in 2022, and -5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that DE underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector, including CAT and RTX, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could DE face a similar situation as it did in 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, DE stock looks like it is appropriately priced. We estimate Deere’s Valuation to be $390 per share, close to its current market price of $380. Our forecast is based on a 15x P/E multiple for DE and expected earnings of $25.50 on a per-share basis for the full fiscal 2024. The 15x P/E ratio aligns with the stock’s average over the last five years.

Deere’s revenue of $13.2 billion (GAAP) in Q3 was down 17% y-o-y, with the construction and forestry segment sales down 13%, production and precision agriculture sales fell 25%, and small agriculture and turf sales were down 18% y-o-y. The company continued to benefit from a robust pricing environment, but equipment volume declined. Deere’s profit of $1.7 billion in Q3’24 reflected a sharp 42% fall from its $3.0 billion profit figure in the prior-year quarter, led by lower operating margins across segments. The earnings per share of $6.29 was lower than the $10.20 figure in the prior year’s quarter, partly aided by a 6% fall in total shares outstanding amid share repurchases.

Looking forward, the company expects a double-digit decline in sales for all of its manufacturing segments in 2024. Deere may continue to face headwinds in the near term, amid lower farm income and elevated interest rates. For perspective, the company expects $7 billion in net income for 2024, while it has reported $5.9 billion for the nine-month period ending July 2024. This implied a $1.1 billion profit in Q4’24, significantly lower than $2.4 billion it reported in the prior-year quarter.

Deere’s business is cyclical, and its sales volume have likely entered mid-cycle levels after hitting a cyclical peak last year. As such, we don’t see any reason to raise the valuation multiple from the historical average of 15x. Overall, we think Deere stock is now appropriately priced at levels of around $380.

While DE stock looks like it is fully valued, it is helpful to see how Deere’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 8/18/2024
[2] Cumulative total returns since the end of 2016

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