Jefferies Upgrades Deere, Cites 'Significantly Improved Farmer Income Outlook'

Farmer buying power will remain pressured for 2019, but this will change for the better next year and will help support Deere & Company DE, according to Jefferies.

The Analyst

Jefferies' Stephen Volkmann upgraded Deere from Hold to Buy with a price target lifted from $150 to $190.

The Thesis

Agricultural fundamentals and farmers buying power should improve in 2020 as increased global demand will support global crop and livestock markets, Volkmann wrote in a note. If correct, farmers will likely invest in their operations by replacing and upgrading equipment, both domestically and internationally.

Volkmann said North American large agricultural equipment should see a double-digit growth rate and Deere is well positioned as the "largest and highest quality" way of gaining exposure. The company should be able to deliver a growth rate north of the 5% consensus estimate in addition to recording incremental margins "well north" of its 20% to 25% historical range.

Even if large U.S. agricultural equipment sales increase by 30% to 35% next year, Volkmann said it will still be at a consistent growth rate with the 15-year average. If this plays out, Deere could realize over $14 in earnings per share power and warrant a higher stock multiple versus prior cycles.

Price Action

Shares of Deere were trading higher by 1.6% to $166.90 on Monday afternoon.

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