Deere: The Near-Term Negative Catalysts Are Played, But Downside Remains, Says William Blair


In a research report sent to investors today, William Blair analyst Lawrence De Maria reiterated an Underperform rating on Deere & Company (NYSE:DE) with a $75 price target, which represents a potential downside of 14% from where the stock is currently trading.

De Maria wrote, “After initially selling off on the low fiscal 2015 guidance, the stock recovered some of the initial losses after the company suggested on the call that 2015 could be a trough in farm equipment demand. Since the company issued guidance well below expectations and guided the first quarter down sharply, there is talk that the worst news and negative catalysts are now over. We believe that Deere guided with elements of both reality and conservatism, appropriately provisioning for a potential downturn next year, as we see it, and based on the company’s visibility (early order programs are down 40%-plus).”

The analyst continued, “With the negative near-term catalysts out of the way, we believe the debate will shift to the longevity and magnitude of the downturn, which we expect to be severe given that the market is coming off a bubble. We view the downturn as likely to last through at least 2016 based on the farm economy, the recent equipment buying binge, and historical analysis. Although there is a temptation to view the guidance as conservative and assume that 2016 will be up based on Deere’s trough comments, we believe the situation is similar to the late- 1990s downturn.”

“Because we remain cautious on the stock and believe the downturn will play out over time, we are not changing our numbers much. While we view Deere as a high quality global industrial, we maintain our bearish view on farm equipment and still see further downside. Agriculture names have dramatically underperformed the market and the broader capital goods coverage group this year, and we do not see a positive catalyst emerging.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Lawrence De Maria has a total average return of 2.2% and a 47.8% success rate. Maria has a -3.1% average return when recommending DE, and is ranked #1787 out of 3402 analysts.

 

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