Deere In Headlights Or Running Along?

Deere & Co DE reported a 15% rise in its quarterly profit earlier this morning, yet shares are down today, off less than 1%. The company reported third quarter earnings of $1.69 per share on $8.37 billion. Wall Street had been expecting earnings of $1.67 per share on $7.50 per billion. Deere's equipment sales jumped 24 percent to $7.72 billion. "Bolstered by yet another quarter of record results, John Deere remains on track for a year of exceptional achievement," said Samuel R. Allen, chairman and chief executive officer. "Our success reflects strong demand for the company's advanced equipment and the skillful execution of our ambitious business plans. These are aimed at expanding our global competitive position and introducing the John Deere brand to a wider group of customers." After starting the day off down more than 3%, shares have come back, off less than 1%, but are still down. So how come? Generally the stock just trades off after the quarter, according to Jim Cramer,. Today's slight decline today should be used as a buying opportunity if you believe what the company had to say on its conference call. Courtesy of MOFinancial, Deere was especially bullish on the future of its business, and said the future of agriculture looks especially bright. The company said it sees 2011 equipment sales up approximately 25%, versus the 23.4% estimate. It also sees fourth quarter equipment sales up roughly 20%, as opposed to the 14.4% consensus. The U.S. Department of Agriculture recently came out with its forecast for the prices of agriculture, and it sees higher prices of corn, wheat, soybeans, & cotton than the Illinois-based company had budgeted. We have seen sharply higher wheat prices recently, so the U.S.D.A report is validating what we are seeing the in the market price. As such, Deere is able to generate higher revenues on increased shipment volumes, and improved price realization. The company said that farmers are generally putting their profits back into the business. It said that "investment interest in agricultural machinery is stable to positive." It also said input costs are below peak levels, as commodity prices have come well off their highs in recent weeks, thanks to the turmoil in the financial markets. The company also mentioned the softening economy, saying the growth out of this recession is weaker than previously seen, and economic indicators are continuing to fall. It expects U.S. government spending to be down 12.6% this year, and off 4.8% next year as austerity starts to hit the U.S. At 10 times 2012 earnings, Deere is trading well below peak multiples. It also offers a 2.1% dividend yield, offering some income protection for investors. Deere's quarter is doing anything but showing the company has been caught in the headlights, as it continues to reap the benefits of a growing world population. This sounds like a Deere that is continuing to run. ACTION ITEMS:

Bullish:
Traders who believe that agriculture will continue to be strong might want to consider the following trades:

• Use today's weakness to add to Deere, or competitors like CNH Global CNH.

• Also consider Potash POT, Syngenta SYT and other agricultural themed names.

Bearish:
Traders who believe that the agricultural trade is over may consider alternate positions:

• The uncertainty in Europe and the U.S. may lead to a recession, if we are not in one already. When recessions come, spending gets cut. This includes farmers, so shares of Deere may fall if a recession hits.
  
  

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