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Deere Trading at a Premium Value: Here's How to Play the Stock

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Key Takeaways

  • Deere expects net income of $4.75B-$5.5B in FY25, down from $7.1B in FY24 due to weak demand.
  • DE's FY25 sales are projected to decline across all segments, prompting cost cuts and production pullbacks.
  • Despite near-term headwinds, DE's focus on tech and global demand trends supports long-term prospects.

Deere & Company (DE - Free Report) is currently trading at a forward 12-month earnings multiple of 24.46X, a 7% premium to the farm equipment manufacturing industry’s 22.85X.

It is also higher than DE’s five-year median of 15.83X. DE has a Value Score of D.

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DE stock also seems relatively expensive compared with other industry players such as AGCO Corporation (AGCO - Free Report) , CNH Industrial (CNH - Free Report) and Komatsu (KMTUY - Free Report) , which are trading significantly lower at 19.81X, 17.29X and 10.54X, respectively, as shown in the chart below.

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DE Stock Price Performance Beats Industry & Sector

Deere shares gained 20.3% year to date, outperforming the industry’s 18.3% growth. The broader Zacks Industrial Products sector has dipped 2.2% while the S&P 500 has gained 1.2%.

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AGCO Corp., CNH Industrial and Komatsu have gained 7.7%, 11% and 20.3% respectively.

DE's YTD Price Performance vs AGCO, CNH & KMTUY

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Image Source: Zacks Investment Research

Weak Demand Weighs on Deere’s Performance

Deere, the well-known manufacturer of iconic green and yellow agricultural equipment, has been witnessing year-over-year declines in both revenues and earnings in the past six quarters. 

The dismal performance was attributed to lower shipment volumes across all segments amid weak demand, somewhat mitigated by Deere’s pricing strategies. Also, there has been a growing preference among buyers for used machinery rather than new equipment.

Farmer spending has been muted amid low commodity prices, persistent inflation and high interest rates, impacting the demand for agricultural equipment. Trade uncertainty and high interest rates are pressuring order activity for both construction and compact construction equipment.

DE’s Weak FY25 Guidance Triggers Downward Estimate Revisions

Deere expects net sales for Production & Precision Agriculture to decline 15-20% year over year in fiscal 2025. Sales of Small Agriculture & Turf are expected to drop 10-15%. Sales of Construction & Forestry are projected to move down 10-15%. The Financial Services segment’s net income is expected to be $750 million.

Deere expects net income for fiscal 2025 between $4.75 billion and $5.5 billion, much lower than the $7.1 billion reported in fiscal 2024. The company has taken steps to reduce costs and intends to cut down production volumes and manage inventory in the wake of the challenging market conditions.
Reflecting this, the earnings estimates for fiscal 2025 have moved down over the past 60 days. The same has moved up for fiscal 2026.

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(Find the latest earnings estimates and surprises on Zacks Earnings Calendar.)

The earnings estimate for fiscal 2025 indicates a year-over-year decline of 26.5%, while the same for fiscal 2026 implies growth of 17.10%.

Signs of Hope For Deere Stock Amid the Downturn

DE’s Focus on Technology, Brand Position Provide an Edge: Increased global demand for food, driven by population growth and rising standards of living, will support the demand for agricultural equipment in the long term. The U.S. agricultural machinery market is expected to reach $42 billion in 2025 and then witness a compound annual growth rate of 6.3% to be around $57.1 billion by 2030. The need to replace aging equipment will also support demand.
With increasing farm sizes, there is a greater need for labor, but escalating labor costs are prompting farmers to turn to mechanization. Deere has been continuously focused on launching products equipped with advanced technologies and features to keep up with customers' evolving demands. Precision agriculture technology is expected to be a key catalyst. The demand for the company’s construction equipment will be supported by increased infrastructure spending.

Deere recently acquired a provider of remote imagery solutions for agriculture, Sentera. DE plans on integrating Sentera's innovative imagery capabilities with its Operations Center portfolio offerings. This will help farmers generate data-driven decisions that boost farm profitability, efficiency and sustainability. 

DE Stock Offers Higher Returns: Deere’s trailing 12-month return on equity is 24.4%, ahead of the industry’s average of 19.2%. Return on equity reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.

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In comparison, AGCO and CNH Industrial have an ROE of 10.6% and 14.32%, respectively, while Komatsu has 13.56%, positioning Deere well ahead of its key peers.

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Image Source: Zacks Investment Research

Is It Still Wise to Retain Positions in DE Stock?

Deere’s market leadership position, technologically advanced products and strong dealer network provide it with a competitive advantage to leverage the long-term demand prospects for both agricultural and construction equipment. However, the company has been facing challenges due to weak farmer spending amid low commodity prices. Those who already own this Zacks Rank #3 (Hold) stock should stay invested to benefit from the long-term demand prospects for both agricultural and construction equipment. 

However, new investors should wait for a more favorable time to accumulate the stock, considering the company’s weak guidance for fiscal 2025, downward estimate revision activity in earnings and expensive valuation.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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