Analysis: DE

Portfolio holding Deere & Co. (DE)  harvested a consensus-crushing October quarter and guided 2023 above expectations.

We alluded earlier to this news, when discussing the revealing S&P Global Flash U.S. November PMI data. The company said fourth-quarter earnings rose to $7.44 a share from $4.12 a share a year earlier, beating the consensus estimate by $0.34. Revenue jumped about 40% from a year-ago to $14.35 billion, beating estimates by $890 million. Those beats have sent DE shares nicely higher, pushing them past our $425 price target and adding to the strong move they've enjoyed since late September after bottoming near $331 on Sept. 26.

In response, we're boosting our price target to $470, which keeps our "Two" rating in play. The catalyst for the price target increase is Deere's order book -- for both its agriculture equipment and its construction and forestry segments, which extend into the second half of 2023. As supply chains continue to ease, higher shipment volumes and price realization should drive favorable operating leverage in the coming quarters. Underscoring that prospect, Deere forecasts its 2023 earnings to be in a range of $8 billion-$8.5 billion, compared with $7.13 billion this year and compared with the $7.8 billion expected by analysts for 2023 heading into this morning's earnings report.

As we lift our price target, we expect to see others on Wall Street do the same on the expected 2023 consensus that will come out in the next few days. Heading into Wednesday's October quarter earnings report, the consensus earnings per share for 2023 was $26.20, up 14%.

We'll continue to monitor crop conditions for 2022-2023 and prospects for farmer income, a key driver of ag equipment purchases. The next known catalyst for DE shares other than price targets moving higher will be its next dividend announcement, one that typically comes in the first half of December.

DE is a holding in the AAP.