Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include AGCO Corporation (NYSE: AG), CNH Global (NYSE: CNH), Deere & Company (NYSE: DE), Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW). To see the Zacks Industry Rank and the trend in earnings estimates revisions for all 208 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
Last week’s earnings report from Deere & Company (NYSE: DE) highlighted the ongoing dichotomy between the agriculture and residential construction industries. Ethanol production has been playing a major role in boosting the entire agricultural sector. (A growing international economy and globalization are also helping.) Conversely, the bursting of the housing bubble is having an adverse impact on companies with exposure to residential real estate. Industry and sector trends can be a tailwind or a headwind, as DE’s fiscal-second quarter report showed
DE generated profits from continuing operations of $2.72 per share. The results were 31 cents above expectations and up compared to year-ago results of $2.36 per share. Revenues rose 5% to $6.88 billion. Agricultural equipment was the primary growth engine for the company with sales increasing 14%. In addition to selling more equipment, DE also had some pricing power and benefited from the weaker dollar.
Not surprisingly, ethanol is helping fuel the demand. DE noted in its press release that industry sales in South America are projected to be up about 20% this year, primarily due to the sugarcane crop in Brazil. Sales in North America are also expected to be higher, where corn prices have risen.
Brokerage analysts were quick to boost their fiscal 2007 profit projections on DE following the bullish report. Within the past seven days, 10 of the 16 covering analysts revised their forecasts, pushing the consensus estimate 22 cents higher to $6.86 per share. It’s worth noting that analysts were also quick to raise their forecasts on AGCO Corporation (NYSE: AG) and CNH Global (NYSE: CNH) following bullish first-quarter earnings reports from both companies. AG, CNH and DE are classified in Machinery-Farm. CNH and AG are Zacks #1 Rank (“strong buy”) stocks and DE is a Zacks #2 Rank (“buy”) stock.
The one weak spot in Deere’s earnings report was in the company’s Construction & Forestry division. Sales for this division fell 12% last quarter due to the ongoing slump in the housing industry. DE expects the division to be under pressure for the remainder and predicted that rental channel sales would “decline significantly”.
The weakness in residential construction also had an adverse effect on Lowe’s (NYSE: LOW), which missed expectations on Monday. The home improvement retailer earned 48 cents per share, two cents below the consensus estimate and down 9.4% from a year prior. Same-store sales declined 6.3%. The miss followed disappointing results from primary competitor Home Depot (NYSE: HD) last week. The majority of the covering brokerage analysts cut their forecasts on HD following its report and we are starting to see additional cuts to Lowe’s earnings estimates as well. Both stocks are classified in Building Product-Retail/Wholesale. HD is a Zacks #5 Rank (“strong sell”) stock and LOW is a Zacks #4 Rank (“sell”) stock.
The interactive Zacks Industry Rank List allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. See the list at http://at.zacks.com/?id=3208.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 (“Strong Buy”) to #5 (“Strong Sell”). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +31.9%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 132% annually (+5.1% vs. +11.9%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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