Deere (DE) Roof Leaking Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Deere ( DE) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Deere as such a stock due to the following factors:

  • DE has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $279.0 million.
  • DE has traded 2.3 million shares today.
  • DE is trading at 1.59 times the normal volume for the stock at this time of day.
  • DE crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on DE:

Deere & Company, together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The stock currently has a dividend yield of 2.7%. DE has a PE ratio of 9.7. Currently there are 3 analysts that rate Deere a buy, 7 analysts rate it a sell, and 9 rate it a hold.

The average volume for Deere has been 2.5 million shares per day over the past 30 days. Deere has a market cap of $32.2 billion and is part of the industrial goods sector and industrial industry. The stock has a beta of 1.21 and a short float of 4.4% with 5.83 days to cover. Shares are down 3% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Deere as a buy. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • DEERE & CO' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DEERE & CO increased its bottom line by earning $9.08 versus $7.64 in the prior year. For the next year, the market is expecting a contraction of 6.4% in earnings ($8.50 versus $9.08).
  • DE, with its decline in revenue, slightly underperformed the industry average of 6.2%. Since the same quarter one year prior, revenues slightly dropped by 8.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Machinery industry and the overall market, DEERE & CO's return on equity significantly exceeds that of both the industry average and the S&P 500.

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