👉 Week in Review: 11/27/22
“Every week of this shutdown is costing Apple ~$1 billion in lost iPhone sales.."
We hope everyone enjoyed their Thanksgiving weekend.
In case you missed it, we shared an extensive portfolio update on Friday. In the update, I share my rationale for doubling down on dividend growth stocks, the end goal, and exactly how I intend to reach it.
I also ask you all to share your feedback on a fun idea we’ve been sitting on a for a few weeks. Be sure to read through to the end and provide much appreciated feedback.
Week in Review — Too Long, Didn’t Read:
Deere & Company is guiding to $8.3B in 2023 profits (+$500M more than expected), DICK’S Sporting Goods remains best of breed, Analog Devices is seeing tremendous momentum from Automobile orders, record high Black Friday shopping, Chinese protests could lead to billions lost for Apple, and inflation remains top of mind.
Key Earnings Announcements:
Deere & Company is guiding to $8.3B in 2023 profits (+$500M more than expected), DICK’S Sporting Goods reported another stellar quarter, and there are now a laundry list of reasons to be excited about Analog Devices.
Deere & Company (DE)
Key Metrics
Revenue: $15.5 billion, an increase of +37% YoY
Operating Income: $3.0 billion, an increase of +75% YoY
Profits: $2.2 billion, an increase of +75% YoY
Earnings Release Callout
“Deere is looking forward to another strong year in 2023 based on positive farm fundamentals and fleet dynamics as well as an increased investment in infrastructure. These factors are expected to support healthy demand for our equipment. At the same time, we have confidence in the smart industrial operating model and our ability to deliver solutions that help our customers be more profitable, productive, and sustainable.”
My Takeaway
Shares of Deere & Company spiked +5% after releasing their stellar earnings. Much of the spike came from their guidance of $8.3B in 2023 profits, compared to Wall Street’s expectations of only $7.8B.
Here’s why current shareholders should remain excited:
Agriculture fundamentals remain positive heading into 2023 — this will continue to drive healthy demand for Deere’s products, evidenced by their order books being full through September of 2023. The same could be said about the construction and forestry markets — creating a lot of financial visibility.
Here’s why eager investors might want to remain on the sidelines:
Their valuation is on the frothy side. The stock is trading at ~16X 2023 P/E estimates — above the company’s multi-decade average of ~15X. However, when DE historically experienced their “boom and bust” cycles due to equipment reorders, their P/E has spiked as high as ~18X ($505 / share at current estimates).
Wall Street is leaning toward a ~17X 2023 P/E multiple ($475 / share) “peak” given the looming recession, leaving only ~8% upside for the stock. I think we’ve missed the boat on this one. The risk / reward isn’t there for me, even after their stellar earnings. I’ll remain on the sidelines.
Analog Devices (ADI)
Key Metrics
Revenue: $3.2 billion, an increase of +39% YoY
Operating Income: $1.1 billion, an increase of +1,013% YoY
Profits: $936.2 million, an increase of +1,136% YoY
Earnings Release Callout
“ADI delivered its seventh consecutive quarter of record revenue, bringing 2022 to a strong close. Our B2B markets of Industrial, Automotive and Communications reached all-time highs, while our Consumer business delivered another year of strong growth. Our team’s execution, combined with strong operating leverage, enabled the most profitable year in ADI’s history”
My Takeaway
By looking at those numbers — ADI certainly brought their fiscal year 2022 to a strong close! Despite having warned investors last quarter of order cancellations, the company delivered an impressive quarter catalyzed by increased bookings from both the Industrial and Auto markets.
With that being said, Wall Street is still expecting the company to do very well throughout 2023.
Catalysts for 2023 stock price appreciation include: 5G rollout continuing across the world, the company has the opportunity to return 100% of FCF to investors through share repurchases or dividends, margin expansion across the board as smaller-than-expected inventory normalization takes place, and continued growth in Automotive (EVs / HEVs).
As you can see below, ADI’s EPS is expected to rise continue moving in the right direction throughout 2023 / 2024. Wall Street is assigning a ~19X EPS multiple on their 2024 EPS of ~$10.50 and calling for a $200 / share stock price. This leaves us with +20% in potential upside — I’m excited and will likely add them to my dividend growth portfolio.
DICK’S Sporting Goods (DKS)