BofA analyst Ross Gilardi downgraded Deere & Co (NYSE:DE) to Neutral from Buy with a $450.00 per share price target (down from $475.00).
While the analyst remains bullish on DE, he notes that “lots of good news is priced in.” DE stock price is up 18% YTD with the S&P 500 down over 10%.
“Deere’s earnings have not peaked, but we believe that a lot of good news is priced into the stock. Our latest bi-annual farm equipment survey reads positively but should have read even better, in our view. As expected, dealer commentary on pricing and inventory was bullish, but we detected a little more caution on order trends due to fertilizer shortages than anticipated,” Gilardi said in a client note.
On the risk side, the analyst notes that the order commentary is “not as bullish as expected,” judging by the feedback from dealers. Similarly, the used equipment pricing may be at its peak.
Net-net, Gilardi sees limited upside from current levels.
“There is strong argument that Deere deserves a meaningful cycle-to-cycle re-rating given its market leader in precision ag at a time of insatiable farmer demand for new technology. Even if we give Deere a 20% premium to its historical 10-12x peak EPS multiple, the stock is probably baking in at least $30 of peak EPS. We are currently modeling $30 of EPS in FY24E. Shorter term, we are not sure if there is meaningful enough upside to FY22E EPS due to ongoing supply chain disruption to propel meaningful upside,” the analyst added.
DE stock price is down 3% in pre-open Monday.
By Senad Karaahmetovic