Deere Downgraded to Strong Sell on Weak Agricultural Outlook - Analyst Blog

On Dec 2, Zacks Investment Research downgraded The Deere & Company (DE), the world's largest agricultural equipment maker, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Deere's share price and estimates underwent negative revisions following the announcement of its fourth-quarter fiscal 2014 results on Nov 26. The manufacturer also provided a bearish fiscal 2015 outlook due to falling crop prices and farm income. Earnings per share in the quarter declined 13.3% yoy to $1.83 impacted by less favorable product mix, lower shipment and production volumes as well as higher production costs.

Deere expects equipment sales to decrease around 21% in the first quarter and 15% year over year in fiscal 2015 because of weak demand for agricultural machineries. The company projects net income of $1.9 billion for fiscal 2015, down from $3.16 billion in 2014 and $3.54 billion in 2013.

Segment-wise, Deere estimated Agriculture and Turf equipment sales to decline 20% for fiscal 2015 as a result of weaker conditions in the global farming economy. On the contrary, global sales for Construction & Forestry equipment is expected to advance about 5% for 2015.

Region-wise, industry farm machinery sales in the U.S. and Canada are expected to be down 25% to 30% for 2015. In Europe, sales are projected to be down 10% due to lower commodity prices and farm income as well as potential pressure on the dairy sector. Sales in the Commonwealth of Independent States are expected to deteriorate further, in part due to tight credit conditions. Sales in Asia are projected to be down slightly, with most of the decline centered in China. In South America, industry sales of tractors and combines are expected to decline 10% year over year due to headwinds affecting agricultural producers.

Over the past 7 days, the Zacks Consensus Estimate for Deere dropped 4% to $6.28 per share for fiscal 2015 and 2% to $5.79 a share for fiscal 2016.

Other Stocks to Consider

Better-ranked stocks in the same industry include Alamo Group, Inc. (ALG), Blount International Inc. (BLT) and Briggs & Stratton Corporation (BGG). All of these carry a Zacks Rank #1 (Strong Buy).