Deere (DE +2.5%) runs higher as Wells Fargo initiates coverage with an Overweight rating and a $455 price target, even after the stock's 14% rise over the past two weeks in conjunction with crop prices, in an environment of "healthy farm fundamentals, elevated fleet age and adoption of new tech supporting high-HP equipment demand."
Wells Fargo's Seth Weber sees Deere "continuing to distance itself from the rest of our Machinery coverage with respect to embracing secular tailwinds around technology and sustainability," and the company's "evolving model... should support higher margins, more recurring revenue and make the model less dependent on machine sales."
At the same time, Weber initiates Caterpillar (CAT +1.8%) at Equal Weight with a $231 PT, saying the company has "made good progress, but we still see the narrative largely tied to the cycle, with industry supply chain and price/cost dynamics likely to temper its ability to fully leverage current strength."
Wells Fargo also recommends machinery rental companies such as United Rentals (URI +0.5%), Herc Holdings (HRI +0.7%) and H&E Equipment Services (HEES +1.2%), saying the rentals tend to outperform the S&P and original equipment makers at the early stage of a demand upcycle.
Saying the stock has historically proven a strong hedge to commodity and general inflation, Jefferies recently upgraded Caterpillar to Buy.