Published - February 21, 2023 @ 11:53 AM (EET)

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Buoyed by healthy farming fundamentals and rising spending on infrastructure projects, Deere & Co (NYSE:DE) raised its annual profit forecast last week after its quarterly income more than doubled from a year earlier, far outweighing Wall Street estimates.

Shares traded 5.9% higher at $426.74 on Friday, the best S&P 500 Index performer.

Deere, the world's largest farm equipment seller, is betting crops will stay pricey amid Russia's invasion of Ukraine that sent wheat futures to a record, enabling farmers to absorb cost inflation and repair aging fleets.

During a conference call with analysts, chief financial officer Josh Jepsen said, "the supply chain is showing early signs of improvement but remains fragile."

WHY IT MATTERS

Despite recession concerns, demand for farmers has been strong, with higher prices accounting for about two-thirds of the $1.2 billion in profit from its large-farm-equipment business in the quarter, the company said.

Large equipment in its Production and Precision Agriculture division saw the most growth, with quarterly sales increasing 55% from a year earlier as the company continues to expand its product portfolio in autonomous crop planting and harvesting solutions.

Deere's overall sales, including its equipment businesses and financing division, increased 32% to $12.65 billion during the most recent quarter.

Net income for the quarter came in at $1.96 billion, easily topping estimates of $1.66 billion, prompting the company to increase its full-year forecast. For fiscal 2023, Deere expects a net income of between $8.75 billion and $9.25 billion, above its forecast from November. 

Elsewhere, the company sees Production & Precision Agriculture sales growing 20%, higher than its previous guidance of 15-20%.

NOW WHAT

Responding to the better-than-expected earnings results, Goldman Sachs analyst Jerry Revich said Deere delivered a "sharp beat and raise."

"Margin performance and outlook were strong across the board, with only development worth monitoring the large build in dealer inventories of $1.5 billion in the quarter - ahead of over $800 million last year and ahead of normal seasonality," Revich noted in a letter to clients.

PRICE ACTION: Based on 19 Analysy ratings covered by TipRanks in the last three months, the stock is a Moderate Buy (13 Buys & 6 Holds). The average price target of $478.61 implies an upside potential of 10.45%.

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