What happened
It's been a tough week for Deere (DE +1.74%) shareholders, with the stock tumbling following a series of downgrades. On Friday, a different analyst chimed in with similar sentiment and the sell-off continued, sending Deere shares down as much as 2.6%.
So what
Deere is a manufacturer of agriculture and construction equipment. The company has a strong business, but its end markets are notoriously cyclical and Wall Street is growing increasingly worried the cycle is turning against the company.
On Friday, Canaccord downgraded Deere from a buy to a hold and cut its price target to $400, from $530. Analyst Bobby Burleson wrote that industry data shows slowing unit growth for agriculture equipment, while dealer inventories for used equipment are building and new equipment inventory levels appear to be "rapidly normalizing."
The analyst said that in the medium term this environment will constrain the potential for upside, prompting the hold rating.
NYSE: DE
Key Data Points
Now what
It is worth noting that it was only in June that Canaccord initiated coverage on Deere with a buy, an indication of how quickly the cycle can move.
Burleson is not trying to sound an alarm, saying that any looming cyclical correction is likely to be "modest" compared to what has come in the past thanks to elevated levels of farm income. And Deere's investment in technology, including autonomous farm equipment, should benefit the company over time.
But there is nothing the company can do in the near term to halt the natural ebb and flow of demand. Given that even after this down week Deere shares are still up 149% over the past five years, investors appear to have decided this is a good time to take some profits.
