Deere & Co. (DE) — a Top Pick for 2023 — develops and delivers global equipment and technology solutions for production-scale growers, mid-size and small growers as well as turf customers, notes John Eade, an analyst with Argus Research.
The company — founded in 1837 — manufactures and distributes a broad range of backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, and landscape loaders; it also finances purchases and leases of Deere equipment.
As a global manufacturing company, Deere is affected by worldwide trends in trade policies, exchange rates and commodity prices. However, Deere management understands, and does a good job of managing the factors it can control, such as pricing and costs.
Sales and earnings are benefiting in the current environment from relatively high commodity prices; volumes are picking up. Meanwhile, Deere management has taken steps to reduce costs, and is targeting all-time high margins. 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 innovates to improve products and the company's customers carry out the essential work of promoting food security. In our view, the shares offer value despite a recent strong performance.
DE shares have outperformed over the past quarter, gaining 19% while the S&P 500 has fallen 3%. Over the past year, the shares have also outperformed the market with a 26% gain compared to a 15% decline for the S&P 500.
We think that DE shares are attractively valued at current prices near $438, at the high end of the 52-week range of $283-$448. From a technical perspective, DE shares have been in a bullish pattern of higher highs and higher lows dating back to July.
On a fundamental basis, the shares appear favorably valued by historical standards and relative to peers. The shares are trading at 14-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. We think that DE shares are a suitable core Industrial holding in diversified portfolios. Our price target is now $475.