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Deere Stock Plunged Friday. Wall Street Thinks Investors Overreacted.

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A John Deere autonomous tractor.

Courtesy of John Deere

Stock of agricultural-machinery giant


Deere

plummeted 14.1% Friday after the company reported better-than-expected fiscal-second-quarter results, and raised full-year guidance.

The problem was Investors wanted more from the company, and Deere’s (ticker: DE) earnings included some one-time items, and some headwind from parts shortages. What’s more, full-year earnings guidance implied there would be an acceleration of sales and earnings in the back half of the fiscal year.

It wasn’t a perfect quarter. Wall Street, however, doesn’t appear all that worried about results.

“From a stock perspective, the selloff seems overdone to us,” wrote J.P. Morgan Tami Zakaria. She isn’t a bull, rating Deere shares at Hold with a $370 price target. Still, Zakaria noted elevated expectations going into the earnings report. Clients are asking her if the quarter was “an anomaly” or “a precursor of future earnings misses and guide-down.” She thinks it’s more likely the former.

Bernstein analyst Chad Dillard also rates Deere stock at Hold with a $385 price target. He called the selloff a “tactical entry point…given clear path to 2H22 revenue ramp up.” 2H22 is short for the second half of fiscal 2022. Analysts use a lot of shorthand in research reports. “We would recommend a tactical long position following this pullback.” Dillard cites two reasons. He believes second-half guidance is achievable, and he believes fiscal 2022 isn’t the peak for Deere.

About $1 billion of machines couldn’t be fully assembled, causing weaker-than-expected machine sales, wrote Baird analyst Mig Dobre in a Sunday report.That was a result of supply-chain problem hitting all manufacturers. “The negative stock reaction on the print reflects [supply] challenges but also the reversal of recent macro/Ukraine-driven inflows which we suspected wouldn’t be able to handle any supply chain/cost pressuring earnings.”

Coming into the earnings report, since Russia invaded Ukraine, Deere stock had risen roughly 6% while the

S&P 500
was down about 9% over the same span. Those are the inflows to Deere stock Dobre referenced.

Dobre rates shares at Buy with a price target of $442. Deutsche Bank analyst Jamie Cook also rates Deere shares at Buy, but with a price target of $472. She wrote the stock reaction reflected hopes for a cleaner beat-and-raise type quarter, but says the setup for fiscal 2023 looks good. Cook cited strong orders for agricultural equipment in North and South America, as well as Europe. “Furthermore there is no quick fix to resolve the Russia/Ukraine war supporting higher commodity prices with an aged fleet,” wrote Cook in a Monday report.

Overall, 56% of analysts covering Deere stock rate shares at Buy. That’s about par, as the average Buy-rating ratio for the S&P 500 is about 58%. The average analyst price target for Deere shares is about $408, implying gains of about 30% based on Friday’s closing price of $313.31 a share.

Deere stock is up a little in premarket trading Monday. S&P 500 and

Dow Jones Industrial Average
futures are up about 0.9% and 1%, respectively.

Write to Al Root at [email protected]

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