Jefferies has moved Deere & Co to an Underperform rating, saying the stock's recent gains already incorporate a full farm cycle recovery and richer valuation multiples that the brokerage sees as premature.
The downgrade came while shares were trading lower in Monday premarket action, off more than 1% at the time. Jefferies noted that Deere shares have more than doubled from the 2022 cycle low and climbed roughly 40% over the past seven weeks.
On valuation, the brokerage pointed out that Deere now trades at about 35 times earnings, a multiple it says sits well above prior peak averages of roughly 23 times.
Price target and earnings timeline
Jefferies established a $550 price target for the company. That target is derived from applying a 15 times multiple to what the firm projects will be peak earnings in 2029. The brokerage said the market appears to be pricing in a next-cycle peak of about $50 per share occurring in 2027 or 2028, which is about 45% higher than the companys last peak near $34.50 in 2023. Jefferies, by contrast, pushes that anticipated earnings peak out to 2029.
Quality acknowledged, valuation questioned
While Jefferies described Deere as one of the highest-quality names in machinery, citing product innovation, market penetration and its large proprietary farm data base, the firm nonetheless argued that current valuation levels already assume both a full recovery in equipment volumes and an expansion of multiples.
The brokerage expects the agriculture cycle to bottom this year. However, it emphasized that a sustained recovery in equipment demand will depend on improved farm incomes, which the U.S. Department of Agriculture projects will fall by about 15% in 2026.
Jefferies highlighted a set of pressures weighing on farm economics and thereby on demand for capital equipment: lower crop prices, higher input costs, trade volatility and elevated debt levels.
Equipment demand trends
High-horsepower equipment sales in North America, the firm noted, have declined for 29 consecutive months and are about 39% below the 2023 peak. Although the pace of declines is moderating and inventories are normalizing, Jefferies pointed to historical precedents where downturns have lasted longer - including a 43-month run from 2014 to 2017.
Given that backdrop, Jefferies said Deere would need to produce a faster and more robust earnings rebound to justify the current share price, a scenario the broker views as unlikely amid slow technology adoption and continued weak farm fundamentals.
Conclusion
Jefferies acknowledges Deere's competitive strengths but sees limited upside from prevailing trade levels because the market appears to be pricing in both an earlier earnings peak and higher valuation multiples than the brokerage believes are warranted under current farm economics.