Shares of Deere (DE, $61.24, down $8.11) are getting hammered this morning after the company missed Wall Street’s expectations once again. The company reported profits of $575 million, or $1.32 a share compared to last year’s quarter of $537 million, or $1.18 a share. Wall Street had expectations of $1.36 a share. The four cents miss comes after the penny miss from last quarter.
The company’s revenue of $7.7 billion was well above expectations of $7.2 billion but Deere’s raw materials costs have been much higher than expected. Deere also went on to say that raw material costs continue to increase and would have an impact on margins in the upcoming quarter as well.
When a company misses on a quarter, it’s normally a good idea to wait another quarter or two to see how the company rebounds before buying the stock or longer-term call options. That was the case with Deere back in May when I mentioned their penny miss the last time they reported earnings. Although Deere has been able to report an increase in profits quarter over quarter, Wall Street is simply punishing this stock right now.
Deere’s stock fell from $90 to $81 that day and for three weeks it held above $80. I mentioned if key support levels of $79 and $76 were broken that the stock could really breakdown. This kind of “homework” was key for me NOT taking a longer-term play on Deere even though I felt Wall Street had over-reacted to a pretty decent earnings report.
Sometimes the trades you never make are the best ones and the homework you do can not only make you money but save you money as well. The sell-off in Deere has put the stock near its 52-week low but the real key was when the stock fell below $80. Once that happened you could clearly see the breakdown was coming. Deere’s earnings report was the straw that broke the camel’s back.
They may come a time where we take another look at Deere but for right now, I’d stay out of the headlights.
Rick Rouse
Rick@OptionsMentoring.com
