On Wednesday, Citi updated its outlook on Deere & Company (NYSE:DE), raising the price target to $420 from $395 while keeping a Neutral rating on the stock. The adjustment reflects a change in the discount rates used for valuation. Despite this increase, Citi has introduced a short-term negative view on Deere's shares, citing potential risks to the 2025 estimates.
Citi has revised its earnings per share (EPS) forecast for Deere, reducing the 2024 estimate slightly to $25.15 from $25.25 due to lowered expectations for the Construction & Forestry (C&F) segment. The 2025 EPS estimate saw a more significant cut to $22.30 from $23.15, and the 2026 projection was lowered to $23.70 from $25.15. These adjustments are attributed to a weaker outlook for North American agriculture and construction sales.
The firm anticipates Deere's fourth-quarter earnings to be $4.10 per share, which is above the consensus of $3.95. However, Citi believes that the fourth-quarter results are unlikely to significantly impact the stock, given the substantial factory shutdowns planned for that period. The focus, instead, is on the fiscal 2025 outlook, which is expected to influence the stock's movement on the day it is announced.
Looking ahead, Citi expects Deere to guide for a downturn in fiscal 2025 sales, with initial net income guidance estimated between approximately $5.75 billion and $6.25 billion. The firm plans to refine its assumptions as Deere's earnings date approaches and will seek further insights at an agricultural dealer conference scheduled in early November.
In summary, while Citi has increased the price target for Deere based on lower discount rates, it maintains a Neutral rating and has initiated a short-term negative view due to anticipated weakness in key markets for the upcoming year.
In other recent news, Deere & Company reported a 15% year-over-year increase in its Financial Services (FS) division revenue to $1.7 billion. However, the FS segment's net income dropped by 30% due to less favorable financing spreads and a higher provision for credit losses. JPMorgan maintained a neutral rating on Deere with a price target of $360.00.
Additionally, Deere has had to adjust its full-year 2024 outlook for FS net income, reducing the forecast from approximately $770 million to around $720 million. Meanwhile, the company recently settled bribery charges with the U.S. Securities and Exchange Commission, agreeing to pay $9.93 million.
Deere's third-quarter earnings surpassed expectations by 10%, primarily due to increased agricultural sales and margins, prompting firms such as Baird and Barclays to maintain their positive ratings on Deere's stock. The company has announced significant production halts at key facilities in the fourth fiscal quarter and a 2-3% price increase for 2025 equipment. Deere also plans to reduce its global salaried workforce by a mid-single digit percentage, potentially yielding $230 million in savings as part of a restructuring plan.
InvestingPro Insights
Deere & Company's financial metrics and market position offer additional context to Citi's analysis. According to InvestingPro data, Deere's market capitalization stands at $109.71 billion, with a P/E ratio of 13.62, indicating a relatively modest valuation compared to historical standards. This aligns with Citi's Neutral rating, suggesting the stock may be fairly valued at current levels.
InvestingPro Tips highlight that Deere has maintained dividend payments for 54 consecutive years, demonstrating long-term financial stability. This track record could provide some reassurance to investors despite Citi's short-term negative outlook. Additionally, the company's strong return over the last three months, as noted by InvestingPro, contrasts with Citi's cautious stance, potentially reflecting market optimism that may not fully account for the projected downturn in fiscal 2025 sales.
It's worth noting that InvestingPro offers 13 additional tips for Deere & Company, providing a more comprehensive analysis for investors seeking deeper insights into the company's prospects.
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