- Deere & Co. (DE +0.2%) is set to benefit from a bottoming agricultural market in the coming year, according to a Baird note today.
- That's in spite of a strong Q4. Shares are up 21% in the past three months.
- Baird's Mircea Dobre has a $117 price target, implying 13% upside, and an Outperform rating. A bottom's coming as "North American large Ag equipment volumes are approaching prior cyclical bottoms, high horsepower equipment sales/planted acres are near 40-year lows, large Ag new equipment inventories have destocked near historical lows and while auction used equipment prices are still pressured, deterioration is nowhere near 2013-15 as selling conditions seem to be improving into 2017," Dobre writes.
- Barclays is not as enthusiastic. The firm has several equipment stocks where the only upside thesis would be that prior peak earnings become the new normal. "That is the case, more or less, for Deere, for Paccar (PCAR -0.3%), and for Caterpillar (CAT -0.4%)."
- Deere's trading at a multiple of 9-10 times the 2013 peak ag machinery sales number, analyst Robert Wertheimer notes. "We estimate another 3-4 years to run in the downcycle, then a few more up to normal." With a generous assumption of a multiple of 15, that would put Deere at $150 in the future; if that's five years away at a 9% discount, that implies about $105 today, he says.