Editor's Note (2/19/2021): A previous version of this piece incorrectly reported the Equipment Operations Net Sales figure as the Net Sales and Revenue figure. This has since been corrected.

Deere & Company (DE) is trading higher by 6% after blowing away first quarter 2021 profit estimates, earning $3.87 per share compared to expectations of $2.17. Revenue rose a healthy 19.4% year over year to $9.11 billion, much better than $7.12 billion estimates. The strongly positive post-news reaction has defied the odds, considering the 15% return to date on top of 2020's extraordinary 55% return. The stock is now trading within a stone's throw of the all-time high at $321.67, posted on Tuesday.

Key Takeaways

  • Deere beat first quarter 2021 top- and bottom-line estimates by wide margins.
  • The company is moving toward fully autonomous machinery.
  • The stock has posted historic gains since March 2020.
  • Price action is challenging this week's all-time high.

The agricultural giant is benefiting from higher agricultural prices. It is also moving toward fully autonomous tractors, combines, cotton pickers, sugarcane harvesters, and loaders as well as soil preparers, seeders, and crop care equipment, improving margins in a multi-billion dollar industry with few competitors. Investor apathy has vanished since the stock posted a three-year low in March 2020, underpinning an uptrend that has carved the most prolific gains so far this century.

Wall Street consensus on Deere has deteriorated in the past year due to outsized share price gains, with a "Moderate Buy" rating based upon 12 "Buy" and 4 "Hold" recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $220 to a Street-high $400, while the stock is set to open Friday's session about $8 above the median $310 target.

Tip

Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale.

Deere Long-Term Chart (1993 – 2021)

Chart showing the share price performance of Deere & Company (DE)

TradingView.com

Deere posted strong returns in the 1990s, fueled by the collapse of the communist bloc. It topped out at a split-adjusted $32.06 in 1998, marking the highest high for the next six years. A 2004 breakout found little buying interest, yielding narrow range-bound action on top of new support, ahead of a strong momentum wave that ended in the mid-$90s in 2008. The subsequent decline relinquished more than 70% of the stock's value into March 2009's six-year low.

A V-shaped recovery wave reached the prior high in 2011, yielding four failed breakout attempts into the fourth quarter of 2016. It had better luck after the presidential election, entering a healthy advance that topped out at $175.26 when the trade war with China took center stage. A 2019 breakout attempt failed after the outbreak of coronavirus in Wuhan, generating a steep decline to the lowest low since February 2017.

A strong recovery wave reached the 2019 peak in August 2020, yielding an immediate breakout that carved a vertical advance more typical of an electric vehicle manufacturer than a machinery company. Price action hasn't carved a sizeable pullback or consolidation pattern since July, setting off extremely overbought technical readings that, so far at least, have not affected the momentum-fueled price action.

You can see this unfold on the monthly stochastic oscillator, which crossed into the overbought zone in August 2020. The flatline action since that time is common in a very strong uptrend, but it will take little selling pressure at this point to set off an intermediate correction that drops the stock into the 50-week exponential moving average (EMA) at $250 as a first downside target. Whatever happens, the current price level does not look like a good spot to jump on board.

Tip

Overbought is a term used when a security is believed to be trading at a level above its intrinsic or fair value. Overbought generally describes recent or short-term movement in the price of the security, and it reflects an expectation that the market will correct the price in the near future. This belief is often the result of technical analysis of the security's price history, but fundamentals may also be employed.

The Bottom Line

Deere is testing this week's all-time high after blowing away first quarter 2021 top- and bottom-line estimates.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.