Bank Of America Downgrades Deere After Big Run

Deere & Company DE shares have performed very well over the past six months, but one Wall Street analyst said Wednesday Deere may have finally run out of gas.

The Analyst

Bank of America analyst Ross Gilardi downgraded Deere from Buy to Neutral and cut his price target for the stock from $173 to $170.

The Thesis

Gilardi said Deere’s risk-reward skew is mostly balanced after its impressive run. Since last April, Deere has significantly outperformed both its primary rival Caterpillar, Inc. CAT and the overall S&P Machinery group. He said Deere will likely need an earnings beat this week and a guidance hike to maintain its premium valuation relative to Caterpillar.

Gilardi said Deere’s 2019 guidance is achievable, but investors shouldn’t be expecting any more guidance hikes in the near term. Gilardi said Wirtgen’s guidance is likely safe, but upside is unlikely given a softening European economy, particularly in Germany.

In addition, he said Deere will likely need a trade deal between the U.S. and China to happen soon. He said farm equipment demand could take a big hit this year of China’s current soybean tariffs remain in place.

“Deere has shrugged off a few mediocre quarters this year, but might not be as forgiving this time due to the premium in the stock,” Gilardi wrote in the note.

In addition to the downgrade, Gilardi lowered his 2019 and 2020 EPS estimates by between 2 and 3 percent to $11.25 and $12.90, respectively.