What’s Happening
Deere & Co. ( DE ) is expected to report its fiscal first-quarter numbers before the market open on February 17. Analysts are calling for earnings of 51 cents per share on revenue of $ 4.62 billion. The stock has trended sharply higher since the presidential election, and shares are currently up 5.9% since the beginning of the year.
Technical Analysis
DE was recently trading at $ 110.15, just $ 0.10 below its 12-month high and $ 35.24 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 $ 105.60 and is trading above recent resistance. Of the 19 analysts who cover the stock, six rate it a “strong buy”, eight rate it a “hold”, and five rate it a “strong sell”. The stock receives S&P Capital IQ’s 3 STARS “Hold” ranking.
Analyst’s Thoughts
Enthusiasm is running higher for Deere, and its main competitor Caterpillar ( CAT ). The current outlook is strong for the companies based on President Trump’s intentions to boost infrastructure spending to spur the economy, and his ambitious plan to build a wall on the Mexican border. Each of these ambitions should result in stronger demand for the Deere’s heavy machinery. The stock has enjoyed major gains since the November election, but even with those gains the valuation is not too higher to avoid the stock. DE has a P/E of 22.8, and analysts expect to see earnings growth of 16.4% during the year. Of course, those estimates could be grossly understated depending on how quickly President Trump starts to move on his plans, assuming he is able to do so. Wall Street is incredibly bullish on the stock, but it will still need to show a good set of quarterly numbers in order for shares to build on recent gains. The company has a solid earnings track record, posting better than expected earnings in each of the last 16 quarters, and revenue beats each of the last four quarters. Look for another solid report, and the stock to move higher in reaction.
Stock Only Trade
If you’re looking to establish a long stock position in DE, consider buying the stock under $ 110.00. Sell if it falls below $ 99.00 or take profits if it gets to $ 126.50.
Bullish Trade
If you want to set up a bullish hedged trade on DE, consider a June 85/90 bull-put credit spread for a 35-cent credit. That’s a potential 7.5% return (21.8% annualized*) and the stock would have to fall 18.0% to cause a problem.
Bearish Trade
If you want to take a bearish stance on DE at this time, consider a June 130/135 bear-call credit spread for a 25-cent credit. That’s a potential 5.3% return (15.3% annualized*) and the stock would have to rise 18.3% 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 June $ 110.00 covered call. Buy DE shares (typically 100 shares, scale as appropriate), while selling the June $ 110.00 call for a debit of $ 104.40 per share. The trade has a target assigned return of 5.4%, and a target annualized return of 15.6% (for comparison purposes only).
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