Deere stock finds itself in an intriguing position on Monday, as it experiences conflicting analyst opinions. One analyst has upgraded the stock to a Buy rating, providing some support, while another has downgraded it to a Hold. This downgrade seems to be affecting the stock's performance in early trading on Monday.
At midday, Deere stock is down 0.5%, in contrast to the S&P 500 and Nasdaq Composite, which are both up 0.5% and 1.2% respectively. It's important to note that Deere shares have already experienced a decline of approximately 7% in 2023, whereas the S&P 500 saw a rise of 24% during the same period.
Morgan Stanley analyst Angel Castillo has initiated coverage of several machinery makers, including Deere, with a Buy rating. Other companies such as Paccar, Cummins, and Wabtec have also received favorable ratings from Castillo.
According to Castillo, nonresidential construction activity in the U.S. is currently at an annualized rate of about $1.1 trillion, nearing record levels. While this might seem positive, it also raises concerns among investors about whether this is indicative of a market peak. Castillo believes that nonresidential construction activity will reach its peak in either 2024 or 2025.
Identifying Potential Opportunities
Castillo is seeking exposure to end-markets that may be bottoming out, such as trucking and railways. Additionally, he is looking into areas that do not necessarily follow the broader macroeconomic trends, like agriculture.
In summary, Deere stock is navigating through mixed opinions from analysts. While one analyst upgrades the stock to Buy, another downgrades it to Hold. Market performance has been impacted by these conflicting views. Analyst Angel Castillo emphasizes the importance of identifying potential opportunities in nonresidential construction, as well as end-markets like trucking, railways, and agriculture.
Impacted by Declining Farm Incomes
Despite a current downturn in the farm industry, Deere is looking for avenues to counter the impact of reduced corn prices that have resulted in a 31% year-on-year decrease in farm incomes. Juan Castillo, an analyst, believes that Deere can address this setback by placing a greater emphasis on selling advanced agricultural equipment to farmers, which not only enhances crop yields but also lessens the need for manual labor on farms.
Castillo forecasts a price target of $430 for Deere's stock. He estimates target prices of $125, $278, and $137 for Paccar, Cummins, and Wabetc respectively.
A new "Buy" rating is typically a positive sign for a stock, whereas a downgrade is seen as undesirable. Another analyst, Rob Wertheimer from Melius, downgraded Deere's stock from Buy to Hold. However, he maintained a price target of $478 for the stock. There was no immediate response from Melius when asked to provide a copy of the report.
Presently, 56% of analysts covering Deere's stock rate it as a "Buy." This percentage is slightly higher than the average Buy-rating ratio for stocks in the S&P 500, which stands at approximately 55%. The consensus among analysts suggests an average price target just below $430 per share. On Monday, Deere's stock was trading at around $394.
About a year ago, nearly 70% of analysts covering Deere's stock had rated it as a "Buy." However, the uncertainties surrounding farming incomes have cast doubt on the future performance of this stock. The recent rating actions on Monday indicate this ongoing tension.
Over the past twelve months, Deere's stock has experienced a decline of around 8% during midday trading. In contrast, the S&P 500 and Nasdaq have shown respective gains of approximately 21% and 38%.