Deere & Co. Downgraded At Baird, Firm's Long Thesis Has 'Played Out'

In a report published Tuesday, Baird analysts downgraded the rating on

to Neutral. The price target was lowered from $102 to $98. The analysts' thesis regarding stock benefitting from the management's realistic FY15 guidance, strong execution, multiple expansion and seasonal tailwinds seems to have "played out." However, going forward, the analysts expect the seasonal tailwinds to decline, while 2016 is expected to be another difficult year in terms of demand for farm equipment. Also, with corn prices likely to face seasonal under pressure, the stock might see some negative sentiment through the summer. The analysts believe that upside to the stock is limited. "Following a strong 2Q, it has become clear that management's FY15 guidance appropriately accounted for a severe ag downturn, the debate now shifts toward the duration of the ag downturn and the trajectory of the recovery. We believe there is a high probability 2016 could mark a third consecutive year of ag equipment declines," the analysts said. In addition, with fleet ages still being young, according to historical standards, farmers are less likely to need equipment replacement in the near term. "New and used equipment inventory levels remain elevated, with dealer destocking and potential pricing pressure possible in 2016," the Baird report suggested. The analysts also expect net income in the Financial Services segment to be meaningfully lower in 2016, following the first rollover of the Financial Services receivables growth since 2009.