Please ensure Javascript is enabled for purposes of website accessibility

Can Deere Still Mean Green?

By Stephen D. Simpson, Simpson, – Updated Nov 16, 2016 at 12:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This cyclical company seems to be reaching a peak. Tread carefully, Fools.

Sometimes it's not so obvious whether a company had a good quarter. Take Deere (NYSE:DE), for example. Yes, its reported earnings per share this quarter were well ahead of the published mean estimate, but they were down on a year-over-year basis, and below the average analyst's estimate three months ago.

This diversified machinery maker has seen better quarters. Total sales were down about 1%, as positive sales growth in the commercial & consumer and construction & forestry segments almost offset declines in the agricultural business. Deere isn't alone here. Although construction machinery rival Caterpillar (NYSE:CAT) had positive top-line growth in the third quarter, farm machinery competitor AGCO (NYSE:AG) was basically flat on the revenue line, and CNH Global (NYSE:CNH) fell slightly.

Should Deere management's guidance prove accurate, next year looks challenging for the farm business as well. Demand doesn't seem too sharp in either North or South America (major markets for both Deere and AGCO). Europe looks a little better comparatively, which could be good news for CNH.

Here's the bigger question for investors: Is Deere, a cyclical company, reaching its latest peak? It seems that Deere will have positive earnings growth for the next fiscal year, but that growth will likely be in the single-digit range, suggesting that earnings momentum is starting to ebb.

In Deere's favor, the company does produce a better return on capital than its industry in general. What's more, the stock has had a good run over the past 20 years, despite a few nasty drops along the way. These shares aren't priced inappropriately when compared to past cyclical tops. But after seeing the stock price tumble in past downswings, I'm not sure the potential rewards adequately outweigh the risks.

For more mechanized Foolishness:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Caterpillar Inc. Stock Quote
Caterpillar Inc.
CAT
$164.24 (-3.70%) $-6.31
Deere & Company Stock Quote
Deere & Company
DE
$334.22 (-3.44%) $-11.91
First Majestic Silver Stock Quote
First Majestic Silver
AG
$6.73 (-8.31%) $0.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.