Shares of Deere & Company EN are trading higher in Friday morning’s premarket session; The stock is expected to open up as much as 6.6% higher as investors flock to the store. The renewed optimism comes with the company’s recent press release telling investors about its second quarter 2023 results. In this report, management presented strong performance and execution in various segments, with a focus on agricultural machinery.

There is a hidden tailwind in the resulting farm equipment demand that analysts may already be reflecting in their price targets, as companies wish CF Industries CF express their views on the short-term future of the agribusiness. CF Industries operates as a chemical manufacturer to enable agricultural volumes. However, once the harvest is ripe, farmers need to turn to Deere for the right tools and equipment. With CF pointing to high farm volumes for the remainder of 2023, Deere investors could expect more than analyst-predicted double-digit upside.

Catch a Wave

Deere reports a 34% increase in net sales for the second quarter of 2023 compared to the same period last year. Operational efficiencies have accelerated net profit growth by 36%. Those increased cash flows and margin expansion gave management an opportunity to consider returning cash to shareholders after a fantastic year. Nearly $2.5 billion from the free cash flow pool has been allocated to buy back up to 11.6 million shares from the open market; As management buys shares, this could be one of the first signs of an undervaluation of the stock today.

Most of the revenue growth came from the “production and precision farming” division, which includes all of the company’s agricultural product lines. With net sales up 53% over the trailing twelve months, this segment delivered $7.8 billion in revenue and a further 105% increase in operating income on favorable pricing terms.

The segment’s operating margin was…