Deere Tightens up Its 2022 Guidance; We View Near-Term Demand as Healthy

Deere reported solid results to close out its fiscal third quarter, leading us to raise our fair value estimate to $297 from $294 previously. Equipment sales grew by 25% year on year, as agriculture fundamentals remain positive. Management highlighted its order book for early 2023 is shaping up well, showing demand for agriculture equipment is solid. That said, supply headwinds continue to be a challenge for the agriculture industry. Some key callouts on this front for Deere was continued cost inflation (material and freight), in addition to production inefficiencies. Combining these factors, segment operating margins declined by nearly 50 basis points to 17.8% in the third quarter.