If that Deere (DE) Wednesday morning earnings report and FY2020 forecast get you excited about the stock, then I might have to put you in the hopeless bull category. Sure, the company's earnings per share of $2.14 beat expectations by a penny, and revenue of $8.7 billion came in ahead of the $8.53 billion target. That's all good, but guidance for FY2020 wasn't.
Management projects net income between $2.7 billion and $3.1 billion for FY2020; however, net income for FY2019 landed at $3.252 billion. We could see net income declines as high as 17% next year. Best case comes in around a 5% decline. Deere blames the trade war between the U.S. and China as well as bad weather in the States. This double whammy has Deere hurting on all fronts. Global Ag and Turf equipment is expected to be down 5%-10% next year, industrial Farm equipment sales in the U.S. and Canada down 5%, and Construction and Forestry equipment lower by 10%-15%.
There's no good in those projections. In order to try and maintain the bottom line, Deere will likely continue cutting their workforce as well as reducing CAPEX. Cost controls will help, but it's lipstick on a pig. The trade war isn't ending any time soon, and the weather from 2019 is in the books. The company will have to wait for better fortunes from Mother Nature, but any positive impact won't be felt for quarters, not weeks.
The chart isn't anything to create excitement. The breakdown this week turns what could have possibly been a bull flag consolidation on the weekly chart into a simple loss of support. Bearish crossovers in volume, trend, and momentum all clicked in front of this week's price breakdown. It doesn't take a genius to figure out that's not a good thing.
I expect Deere to continue on its downward path. My target here is $153 to $155. Unless we trade back above $175, I see no reason to be bullish or an owner here. In fact, I'd consider a put play, especially if your portfolio is heavy on the long side. If I already owned the stock, I'd put a hard stop/hedge in at $165 and sell any bounce to $172.50.
Now, get away from your desk for the day and go enjoy the holiday if it is one you celebrate. Otherwise, just enjoy some rest.
