NEW YORK, Aug 17 (Reuters) - The harvest has come in for stock investors in Deere & Co but a more plentiful bounty may rest on further improvement in the farm equipment maker's performance.
Even in a strong year for machinery stocks, Deere shares stand out. They have climbed 22 percent in 2017 against a 14.5 percent rise for the S&P 500 machinery industry index .
Deere's cost controls have been better than expected while a recently announced acquisition positions it to diversify more in construction equipment, analysts said.
Deere's agriculture markets are also showing encouraging signs that they are bottoming, says William Blair analyst Lawrence De Maria, after being pressured since 2013.
A test comes on Friday with fiscal third-quarter results for the company known for its signature green tractors. Revenue is expected to rise by 18 percent to $6.9 billion with earnings per share jumping nearly 26 percent, according to Thomson Reuters I/B/E/S.
This is the quarter where investors are starting to look for lift-off," Edward Jones analyst Matt Arnold said, noting improved results reported in agriculture equipment by AGCO Corp and in construction by Caterpillar.
Wall Street is slightly more cautious on Deere shares than machinery and S&P 500 stocks broadly. Eight analysts recommend investors buy the stock, 12 have hold ratings and one says sell, according to Thomson Reuters data.
Bank of America Merrill Lynch analysts downgraded Deere shares to "neutral" this week, saying they "expect the pace of earnings outperformance relative to investor expectations to begin subsiding."
You have to see the operating performance continue to get better," said De Maria. "We want to see how the margins shape up because they have done a good job so far.
Deere, whose market value eclipses $40 billion, has surprised Wall Street with its ability to control costs. In the last quarter, Deere's operating margin was 15.3 percent, surpassing the 11.3 percent expected by analysts, according to De Maria.
They managed the downturn better than any of the other firms," Arnold said. They have a little bit more nimble business model than some of these other machinery companies.
After three years of declines, Wall Street expects Deere's revenue to rise nearly 9 percent this fiscal year, according to Thomson Reuters data.
Whether the stock succeeds may be out of Deere's hands in part, instead resting on the performance of corn prices.
What Deere has done has been pretty solid in an environment that we still think is pretty negative as far as crop prices, said Michael Shlisky, analyst at Seaport Global Securities.
(Reporting by Lewis Krauskopf; Editing by Nick Zieminski)