Jefferies reshuffled its ratings for machinery and industrial stocks on Thursday, citing concerns over high valuations and market sentiment around industrial trends.
Specifically, the investment bank cut Deere (NYSE:DE) & co from Buy to Hold, following a significant stock price increase after its fourth-quarter 2024 earnings results.
The stock is trading at a price-to-earnings (P/E) ratio of 24 times Jefferies' 2025 earnings estimate of $19 per share, aligning with the high end of historical valuations.
“To us this prices 2025 as the cycle troughs, which may well be the case, but current valuation leaves little room for further multiple expansion, in our view,” analysts said in a note.
“This valuation would also appear to provide little cushion should there be any downside to current sell side consensus of ~$19.85. Near-term, we have noted the ag sector may be most at risk from a ramp up of tariff conflicts with China,” they added.
Despite the downgrade, Jefferies maintains a positive long-term outlook on Deere, reiterating its 2025 price target for Deere at $510, suggesting approximately 12% upside from current levels.
PACCAR (NASDAQ:PCAR) also received a downgrade due to its shares trading at nearly 10 times the 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), which is at the upper end of the historical range.
Jefferies pointed out that while recent industry order trends are positive, the potential delay of 2027 emission regulations under the new administration could jeopardize sales growth expected from a pre-buy in 2025/2026.
Lastly, Kennametal (NYSE:KMT) was downgraded to Hold well, with Jefferies analysts citing the strong rally in the stock post the November election results. The shares are currently trading at just under 9 times Jefferies' 2025 EV/EBITDA estimates.
“Expectation for our shorter-cycle coverage have improved post election and sentiment is trending higher,” analysts noted.
“With underlying industrial fundamentals relatively unchanged we believe there could be some risk to the reminder of the company's F2025 guide which bakes in LSD (low single digit) revenue growth through the first half of calendar 2025,” they added.
Alongside these downgrades, Jefferies also upgraded SiteOne Landscape Supply (NYSE:SITE) and Timken (NYSE:TKR) to Buy, and highlighted Caterpillar (NYSE:CAT) and Parker-Hannifin Corp (NYSE:PH) as its top large-cap picks.