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Can Deere Surprise Analysts by Surpassing Revenue Estimates?

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Analysts’ 2Q17 revenue estimates

Analysts are expecting Deere & Company (DE) to post revenue of $7.3 billion in 2Q17, a 2.6% rise year-over-year compared to $7.1 billion in 2Q16. In the past three quarters, Deere has managed to beat analysts’ estimates. Now let’s see if Deere can continue the trend in fiscal 2Q17.

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What could drive up Deere’s 2Q17 revenue?

The major factor that could drive up Deere’s revenue is expected to be growth in South America, specifically Brazil and Argentina. DE’s agriculture and turf segment is expected to rise 15.0%–20.0% in these regions due to improved political and economic conditions. DE’s introduction of new products is also expected to drive up revenue.

However, according to a February 7, 2017 report, the USDA (U.S. Department of Agriculture) expects net farm income to fall 10.5% in 2017. What a farmer spends on farm equipment depends on farm income. Estimates suggest that revenue from the United States and Canada will fall 5.0%–10.0%. Europe is facing a similar scenario, which is posing a challenge to Deere’s revenue growth. The weakening of the US dollar against the Brazilian real and Argentina’s peso could also adversely impact DE’s revenue.

You can indirectly hold Deere by investing in the VanEck Vectors Agribusiness ETF (MOO), which has invested 7.2% in Deere. The top holdings of this fund include Syngenta (SYT), Monsanto (MON), and Zoetis (ZTS) with weights of 8.5%, 8.1%, and 7.3%, respectively.

In the next part of this series, we’ll look at analysts’ earnings expectations for Deere in fiscal 2Q17.

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