Deere Stock Jumps Despite Mixed Q4 Results and Pessimistic Outlook

The stock price of Deere (NYSE: DE) rose by 8% on November 21, following the company’s positive fiscal Q4 results (fiscal year ends in October). Deere logged equipment revenue of $9.3 billion and earnings of $4.55 per share, surpassing street estimates of $9.3 billion and $3.90, respectively. However, with a gloomy forecast for fiscal 2025, analysts believe DE stock may now be overvalued. Let’s take a closer look at the performance and its implications.

Deere’s Q4 Performance Overview

Deere’s Q4 equipment revenue of $9.3 billion marked a 32% decline compared to the previous year. Sales in the construction and forestry segment decreased by 29%, while production and precision agriculture fell 38%. Furthermore, small agriculture and turf sales dipped by 25%. Although Deere benefited from strong pricing, equipment volume saw a downturn. The company’s profit plummeted to $1.2 billion in Q4’24, a significant 47% drop from the $2.4 billion profit reported in the same quarter last year, largely due to reduced operating margins across all segments. A year ago, the earnings per share stood at $8.26, compared to the current $4.55.

Looking ahead, Deere anticipates a decline in sales of 10% to 15% across its segments, projecting net earnings between $5 billion and $5.5 billion. While this forecast is not as severe as the declines in 2024, it still falls short of the $5.9 billion street estimate.

Implications for Deere Stock Valuation

DE stock has shown inconsistency recently. Annual returns for the stock were 29% in 2021, 27% in 2022, -5% in 2023, and 11% thus far in 2024. This volatility stands in contrast to the Trefis High Quality (HQ) Portfolio, which has consistently outperformed the S&P 500 over the same period, achieving better returns with less risk.

The ongoing uncertainty in the macroeconomic landscape, marked by potential rate cuts and geopolitical conflicts, raises questions about whether DE will replicate its 2023 performance and underperform the S&P in the next year. Currently, DE stock appears slightly overvalued, with our valuation estimate at $372 per share—around 15% below its market price of approximately $440. This valuation suggests DE is trading at 21 times forward expected earnings of $20.90 per share in 2025, significantly higher than its average price-to-earnings (P/E) ratio of 15 over the past five years.

As a cyclical business, Deere may be facing mid-cycle challenges after peaking in 2023. Factors such as declining farm income and high-interest rates may prompt farmers to delay purchasing large agricultural equipment. Importantly, U.S. farm income is expected to fall for the third consecutive year in 2025. Moreover, the threat of 200% tariffs from Trump if Deere relocates production to Mexico adds another layer of concern. Given these conditions, a 10% to 15% sales decline might not seem drastic, but it suggests a need to reconsider the high 21x P/E multiple.

Investors should also consider broader economic risks, including tariffs, deportations, and low taxes, which could complicate the Fed’s efforts to control inflation. A pause in rate cuts alongside rising inflation could further impact Deere’s equipment volumes. Labor shortages in the agricultural sector, exacerbated by deportations, may deepen these challenges. For more on the broader economic context, refer to our analysis on Could S&P Crash More Than 40%?.

While DE stock shows signs of overvaluation, comparing it with Deere’s Peers may offer additional insights. Valuable comparisons across various companies can be found at Peer Comparisons.

[1] Returns as of 11/22/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.