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Truist Securities has adjusted its outlook on Deere & Company (NYSE: NYSE:DE), increasing the price target to $443 from $439 and retaining a Buy rating on the stock. This adjustment comes after Deere's stock experienced a 7% rise, outperforming the S&P 500's 2% increase, following the company's third-quarter earnings surpassing consensus EPS estimates by 10%. The positive earnings were attributed to stronger agricultural sales and margins.
Deere reported third-quarter earnings that not only beat expectations by 10% but also exceeded consensus estimates by 16% when excluding around $0.35 per share in one-time restructuring costs. Despite a reduction in operating cash flow (OCF) projections to between $6.0 billion and $6.5 billion from the previously estimated $7.0 to $7.25 billion, Deere maintained its net income guidance at $7.0 billion. The company kept its sales guidance for Production & Precision Ag and Small Ag & Turf steady but increased pricing forecasts for the fiscal year 2024 to 2% from 1.5%.
The analyst highlighted Deere's robust margin performance and its ability to maintain guidance amid declining top-line sales and production cuts. Despite anticipating severe production cuts in the fourth quarter, Deere has not altered its yearly forecast for agricultural production cuts, suggesting that the company is nearing the end of such reductions. Deere also noted positive pricing trends in North America and Europe, with a modest price increase for Brazil in the quarter, reversing earlier discounting.
Deere's early order program for 2025 equipment, which includes sprayers and planters, is down by double digits from the previous year's peak levels. However, the company announced a 2-3% price increase for this equipment.
Truist Securities anticipates that despite the potential for sales to decline in the high single digits to low teens percentage range in fiscal year 2025, Deere could see benefits from several factors. These include the absence of approximately $2 billion in sales headwinds from production cuts, reduced overhead inefficiencies, and cost savings from recent streamlining measures.
Deere is undergoing a restructuring that includes a $150 million charge, with $124 million accounted for in the third quarter of 2024 and the remainder expected in early 2025, aiming to reduce its global salaried workforce by a mid-single digit percentage. This strategy is forecasted to yield $230 million in run-rate savings.
InvestingPro Insights
As Deere & Company (NYSE:DE) navigates through a dynamic market landscape, InvestingPro data and tips provide a deeper dive into the company's financial health and stock performance. With a robust market capitalization of $102.86 billion and a P/E ratio of 11.97, the company is trading at a low price-to-earnings ratio relative to its near-term earnings growth. This could indicate that the stock is undervalued compared to its earnings potential. Additionally, Deere has maintained its dividend payments for 54 consecutive years, showcasing a commitment to returning value to shareholders, and has raised its dividend for 3 consecutive years, with a dividend growth rate of 17.6% over the last twelve months as of Q1 2023.
InvestingPro Tips highlight that Deere is a prominent player in the Machinery industry, which is relevant considering the company's recent positive pricing trends and restructuring efforts aimed at streamlining operations. Despite analysts anticipating a sales decline in the current year, Deere's strong return over the last five years and a significant return over the last week of 7.87% reflect investor confidence and the company's resilience. For readers interested in a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/DE, offering valuable insights for potential investors.
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