What happened
Shares in the agriculture and construction machinery maker Deere & Company (DE 0.11%) were down by 4% at 10 a.m. ET Thursday. The move comes in the aftermath of an analyst downgrade a few days earlier and continued declines in key prices for crops like corn, wheat, and soybeans.
So what
Evercore ISO (EVR 0.05%) analyst David Raso cut his price target to $424 from $456 and downgraded the stock to in-line from outperform.
In reality, an in-line rating implies a sell because if a company is only estimated to perform in line with the market or its sector, then there's no reason to take on extra stock-specific risk by holding Deere stock rather than buying the market or its sector via an exchange-traded fund. Raso's concern is that slowing production levels in South America will lead to lower sales volumes in key markets like Brazil.
NYSE: DE
Key Data Points
In addition, corn, wheat, and soybean prices are down sharply over the last week, recording declines of 1.4%, 2.2%, and 4.3%, respectively. Wheat is at a yearly low, and corn and soybeans are close to theirs.
In a sense, the weakening outlook in South America is priced into the stock because, on the third-quarter earnings call in August, management downgraded its ag and turf industry full-year growth outlook for South America (tractors and combines) to a range of flat to down 5% from a previous outlook of flat.
Image source: Getty Images.
Now what
The ongoing decline in crop prices is probably more of a concern because farmers' spending on equipment tends to follow their crop income, and crop prices usually lead that. As such, continued declines could signal a cyclical high in Deere's revenue and earnings -- something to look out for.
