Citi upgrades Deere to buy, says machinery stock ‘attractive’ even in recession
Deere shares are still bought, according to Citi, even as growing recession fears hit machinery stocks. The investment firm slashed estimates and slashed its price target across the board to reflect the broad-based downturn. But shares in Deere have been upgraded to buy from neutral, with analyst Timothy Thein saying in a note Thursday that the farm equipment maker remains “attractive” given its competitive position in the market. school. Thein said he prefers higher-quality machine names that can handle growing inflationary pressures. “We are still building on the company’s competitive positioning in its core Ag equipment markets, particularly in the Americas in relation to its dealer base, brand and precision ag services. “, Thein wrote. Citi slashed Deere’s price target by about 20%, to $340 from $435. The new price target implies a gain of about 13% from when the stock was trading on Thursday. This analyst believes that a large backlog of agricultural equipment will help the stockpile of machinery including Deere in the near future. Shortages of tractors, sprayers and other equipment meant Deere was able to pass on higher prices to farmers. Thein added: “We also see the potential to extend the upcycle due to supply chain constraints, which have limited the flow of both new and used equipment (and therefore inventory). “This should help contribute to structurally higher margins.” Deere shares are also at a “more attractive entry point” after falling about 12% this year. Inevitably, Deere will face rising raw material costs, as well as extreme weather events that could reduce farmers’ ability to pay for new machinery and spare parts. However, analysts expect the stock could outperform its target price if those headwinds are less severe than anticipated. Shares of Deere were up more than 3% in Thursday trading. — Michael Bloom of CNBC contributed to this report.