As a global manufacturing company, Deere & Co. (DE) is affected by trends in trade policies, exchange rates and commodity prices, notes John Eade, an analyst with Argus Research.

However, management does a good job of managing the factors it can control, such as pricing and costs. Prior to the pandemic, results had been on an upswing, driven by a rebound in global demand, an accretive acquisition, and management’s focus on cost controls.

Demand for Deere’s Forestry and Construction equipment slumped sharply due to the coronavirus, and earnings declined in FY20. Deere management took further steps to reduce costs, and earnings are now back in growth mode.

A new CEO and CFO have been appointed recently, and both are from Deere’s innovative Precision Ag group. We see continued solid earnings power in the quarters ahead, as new management takes steps to boost margins and the company’s customers carry out the essential work of promoting food security.

The company is transparent with investors, and sets long-term goals and benchmarks for investors to follow. Based on current sales and margin trends, as well as management’s forecasts, we are lowering our FY22 EPS estimate to $23.20 from $23.75.

Our estimate implies 22% growth this year and is in line with the high end of management’s guidance range. We look for continued growth in FY23, but are reducing our EPS estimate to $26.00 from $27.15 to reflect the lower FY22 base. Our long-term earnings growth rate forecast is 9%.

We think that DE shares are attractively valued, above the midpoint of the 52-week range of $283-$446. From a technical perspective, DE shares had been in a bullish pattern of higher highs and higher lows dating back to March 2020.

On a fundamental basis, the shares appear favorably valued by historical standards and relative to peers. The shares are trading at 15-times our FY23 EPS estimate, compared to a 20-year historical average range of 10-24. Compared to the Industrial peer group, DE shares trade at below-average P/E and above-average price/sales ratios.

We see solid earnings power in the quarters ahead as management takes steps to boost margins. In our view, the shares continue to offer value. Our price target is now $420, up from our prior $390.

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