What’s Happening
Heavy machinery maker Deere & Co. ( DE ) will report its fiscal fourth quarter results before the market opens on November 23. The consensus calls for earnings of $ 0.40 per share, down from $ 1.08 during the same period last year. The stock is up 20.3% on the year.
Technical Analysis
DE was recently trading at $ 91.77, down $ 1.22 from its 12-month high and $ 21.61 above its 12-month low. Technical indicators for DE are bullish and the stock is in a strong upward trend. The stock has recent support above $ 88.25 and has traded above recent resistance. Of the 17 analysts who cover the stock, five rate it a “strong buy”, seven rate it a “hold”, and five rate it a “strong sell”. The stock receives S&P Capital IQ’s 2 STARS “Sell” ranking.
Analyst’s Thoughts
Deere & Co. has seen sales and earnings falling in recent quarters amid a slowdown in tractor sales, but the stock got a big boost in the wake of Donald Trump winning the presidential election. Trump has promised to boost federal spending on infrastructure, which would result in increased demand for Deere products. Deere, and its main competitor Caterpillar ( CAT ), both moved strongly higher on the election results, and the overwhelming bullishness should keep strength under the stock moving forward as long as we don’t see a huge earnings miss for the company’s fourth quarter. Earnings and sales are going to be well below last year’s levels, but that has already been priced into the stock, so as long as we see the company post results in-line or better than expected the stock will trend higher. The consensus calls for earnings of $ 0.40, but analysts are very upbeat on the quarter, and have a whisper number of $ 0.47 for the quarter, which is the number Wall Street is going to be hoping to see for shares to move higher.
Stock Only Trade
If you’re looking to establish a long stock position in DE, consider buying the stock under $ 92.00. Sell if it falls below $ 82.50 or take profits if it gets to $ 105.50.
Bullish Trade
If you want to set up a bullish hedged trade on DE, consider a January 75/80 bull-put credit spread for a 35-cent credit. That’s a potential 7.5% return (43.6% annualized*) and the stock would have to fall 12.4% to cause a problem.
Bearish Trade
If you want to take a bearish stance on DE at this time, consider a January 100/105 bear-call credit spread for a 40-cent credit. That’s a potential 8.7% return (50.4% annualized*) and the stock would have to rise 9.4% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a January $ 92.50 covered call. Buy DE shares (typically 100 shares, scale as appropriate), while selling the January $ 92.50 call for a debit of $ 88.85 per share. The trade has a target assigned return of 4.1%, and a target annualized return of 24.1% (for comparison purposes only).
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