What happened
Shares of Deere (DE 1.48%) fell flat on Friday despite the company posting better-than-expected earnings. Wall Street gave its judgment on the quarter over the weekend and there was little there to change investor impressions, sending Deere shares down as much as 3% on Monday.
So what
Deere is seeing strong demand from the agriculture industry, helping it to post fiscal third-quarter results that easily topped expectations. The company also raised its guidance for full-year net income, saying it expects net sales at its farm equipment division to be up 20% year over year.
Yet, despite the good commentary Deere shares fell following earnings. Agriculture is a notoriously cyclical business, and Deere shares were up more than 30% since last October prior to the earnings release. Investors appear concerned that this is the best it will get for Deere this cycle, and used the earnings release to take gains and move to the sidelines.
Over the weekend, Wall Street analysts chimed in and provided very little clarity. Bank of America raised its price target on Deere but kept a neutral rating on its shares, citing its concern the cycle is at "peak ag." UBS also raised its price target but kept a neutral rating, saying "the jury is still out" on 2024 volumes.
At least four other banks lowered their price targets on the company, all with similar concerns about where market demand goes from here.
NYSE: DE
Key Data Points
Now what
Deere has been an amazing performer for an industrial stock, beating the S&P 500 by more than 120 percentage points over the past five years. The company is well run and has invested well in technology, making its heavy equipment more appealing to farm buyers. But the cyclicality question will always linger over the stock.
For long-term focused investors, cycles matter less because good operators tend to grow through the ups and downs and deliver positive returns over time. But for those caught up in Wall Street's near-term expectations, there is clearly a belief that the rally can't go much further from here.
The post-earnings sell-off is rational, but investors who are willing and able to look past the business cycle have nothing to fear holding these shares.
