On Friday, Oppenheimer maintained a positive outlook on Deere & Company (NYSE:DE) shares, raising its price target to $465 from the previous $456 while keeping an Outperform rating on the stock.
The adjustment reflects a more cautious view of the current market cycle and a clearer path to the company's earnings per share (EPS) potential at the cycle's trough.
The firm's analysis indicates that Deere is expected to face a significant year-over-year production decrease of approximately 30% in its highest-margin product categories, particularly in the fourth fiscal quarter. This is anticipated to result in the lowest quarterly EPS of the cycle for the company.
Despite the projected downturn, Oppenheimer's outlook for Deere remains constructive due to the company's strategy to manage inventory levels effectively. Deere is poised to substantially reduce its inventory-to-sales ratio and align production with demand by the year 2025.
According to Oppenheimer, even if demand remains subdued in the fiscal year 2025, Deere is expected to start seeing positive EPS growth in the second half of that year.
This projection is based on the assumption that the company will continue to manage production in response to market demand, which could lead to an upward inflection in earnings.
InvestingPro Insights
As Deere & Company (NYSE:DE) navigates through a challenging market cycle, InvestingPro data presents a multifaceted view of the company's financial strength and market position. With a market capitalization of $109.79 billion and a trailing P/E ratio of 11.03, Deere demonstrates a solid valuation relative to its earnings. The company's commitment to shareholder returns is evident through its consistent dividend payments, which have been maintained for 54 consecutive years and have grown by 22.5% over the last twelve months as of Q1 2024. This aligns with one of the InvestingPro Tips, highlighting Deere's three consecutive years of dividend raises.
Additionally, the company's stock exhibits low price volatility, which is reassuring for investors looking for stability in their portfolio. Deere's status as a prominent player in the Machinery industry, combined with a strong return over the last five years, positions it well for long-term growth. This is further supported by the fact that analysts predict the company will be profitable this year, a sentiment that is echoed by the company's positive revenue growth of 9.18% in the last twelve months as of Q1 2024.
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