Deere Stock Builds Base On Expected Profit Growth – Investor's Business Daily

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Emerging Pattern
Flat Base
One of three positive chart patterns to look for when doing technical analysis. It usually occurs after a stock has advanced off of a “cup with handle” or “double bottom” pattern. The “flat base” moves straight sideways in a fairly tight price range for at least five weeks and does not correct more than 15%.
Deere (DE) is Friday’s IBD Stock Of The Day, as the leading farm equipment manufacturer forms a new base on the back of strong quarterly earnings and expectations of accelerated profit growth in 2023.
John Deere, best known for its tractors and heavy equipment, has seen shares gain around 25% on the year, boosted by a 133% quarterly profit gain in Q2 compared to Q1. Earnings jumped to $6.81 per share in the second quarter, then dropped by 9% in Q3 before adding another 20% in Q4.
Analysts are expecting strong quarterly profits in 2023 as well. Deere, along with other companies, should see a boost from the federal infrastructure spending bill and the Inflation Reduction Act. The infrastructure spending plan, which was approved last fall, will dole out more than $500 billion for various projects. And the Inflation Reduction Act includes $369 billion to expedite mining projects and build out renewable energy infrastructure.
However, there are possible macroeconomic road blocks to growth for the Illinois-based company. The war between Russia and Ukraine could cause long lasting supply shortages for farm equipment and agricultural goods. Inflation and the high cost of goods and services could also take its toll.
John Deere stock is a Big Cap 20 and IBD 50 growth leader and a top stock to watch.
Deere stock edged down 0.4% to 426.87 Friday during regular market trade. On the week, shares shed around 2.3%. Deere stock has been trading tightly, pulling back below its 10-week line. DE shares are above their 50-day moving average.
The stock is building a flat base which should be valid at the start of trade Tuesday. The Nov. 23 high marks 448.50 as the buy point, according to MarketSmith analysis.
However, the stock market is now in a correction, despite Thursday’s bounce. Investors should be wary of taking new positions.
In November, the company beat earnings and revenue estimates for its fiscal fourth quarter, despite supply headwinds. EPS ballooned 80% to $7.44 and sales advanced 39% to $14.35 billion. Deere also gave an optimistic 2023 outlook in November.
The farming equipment manufacturer expects fiscal 2023 net income of $8 billion-$8.5 billion, above consensus and up from $7.13 billion in fiscal 2022. Analysts surveyed by FactSet now see Deere earnings per share of $5.52 on sales of $11.41 billion in Q1 2023. That would represent 89% EPS growth and revenue growth of 34%.
IBD ranks John Deere stock first in the Machinery-Farm industry group. DE shares have a Composite Rating of 99 out of 99. Its Relative Strength Rating is 94; the RS Rating is an exclusive IBD Stock Checkup gauge for share price movement, with a 1-99 score. The EPS Rating is 96.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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After enduring a painful bear market in stocks in 2022, investors are searching for signs of what’s to come in 2023. (© Gary Neill)
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Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the stocks they discuss. The information and content are subject to change without notice.
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