Deere & Co, a leading manufacturer of agricultural machinery, is set to release its third-quarter earnings report, with analysts at Goldman Sachs specifically paying attention to the performance of the company's captive finance business. The finance operations at Deere are seen as resilient, with a significant portion of its loan portfolio exhibiting minimal risk, providing a favorable outlook despite challenges in farmer incomes.
Goldman Sachs notes that Deere's captive finance business has historically shown strength, with 75% of its loan portfolio considered low risk and experiencing negligible losses. The remaining 25% of the portfolio consists of wholesale receivables, which have also demonstrated stability due to profitable dealerships and the nature of the asset-backed loans. The analysts project potential impacts on earnings per share (EPS) in the future, indicating a scenario where write-offs could affect the company's financial performance in fiscal year 2024. Despite these projections, Goldman Sachs remains optimistic about Deere's financial prospects, projecting revenue growth and emphasizing a positive risk-reward ratio for investors.
While Deere faces risks such as adverse weather conditions affecting crop yields, inventory challenges in China, and supply chain constraints, Goldman Sachs believes in the company's ability to navigate these challenges and capitalize on its strong market position. The investment firm maintains a positive outlook on Deere, attributing its Buy rating to factors such as investment in Precision Agriculture technologies and a reduction in used equipment inventories. With a 12-month price target based on valuation metrics, Goldman Sachs expresses confidence in Deere's potential for continued earnings growth despite cyclical challenges in the agricultural sector.