Covered Call Trade on Deere and Company (DE)

This is a covered write on Deere and Company (DE) for the December 2012 expiration.  Deere & Company provides products and services primarily for agriculture and forestry worldwide. The company operates in three segments: Agriculture and Turf, Construction and Forestry, and Credit.


Look at the December 72.5 covered call. For each 100 shares of Deere and Co (DE) stock you buy, sell one December 72.5 covered call option for a 70.14 (73.64 – 3.50) debit or better. That’s potentially a 3.36% assigned return in 19 days.   That is a 63.66% anualized gain (comparable purposes only) on this short trade.


The technicals for DE are bullish with a weak upward trend.  The stock is under accumulation with support at 74.06. S&P rates this stock 4 STARS (out of five) – buy.


S&P maintains buy opinion on shares of Deere (DE) .  Oct-Q EPS of$1.62, vs. $1.07, beats our est. by $0.23.  Revenue gain of 20% was in line with our est., on strong equipment demand, but costs were controlled better than we expected.  Most encouraging, in our view, is DE’s equipment outlook, with its guidance of 15% growth in FY 12 (Oct.) equipment sales, well in excess of our prior 10% est.  Our long-term view also stays positive, on growing needs for food and infrastructure.  We raise our FY 12 EPS estimate by$1.00 to $8.60, and initiate FY 13’s at $9.60.  We keep our target price at $99, in line with historical relative metrics.