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Shares of Deere & Company (NYSE:DE) are up over 3% today after Citi analyst Timothy Thein upgraded to Buy from Neutral.
The upgrade move comes despite the expectations that “a downturn is coming” in the US Machinery sector.
“Near-term numbers should be largely insulated due to high backlogs and embedded pricing, thus our estimate revisions are centered on 2023, and especially 2024. The market has priced some form of recession to a degree based on the sector de-rating, though history suggests potential for further downside,” Thein told clients in a note.
The analyst sees positive risk/reward in DE despite the likely peak for global crop prices this cycle. However, Citi also expects historically high price levels to persist given tight global stocks (ex-China).
“We think fears of peak ag are overblown given the significant amount of pent-up demand, and low channel inventories, which will take several years to replenish. We believe the structural improvement in DE’s margins can be sustained in this environment, supported by improving price/cost. Our model assumes margins expand to 19% in FY23, as DE is likely able to hold on to pricing in large ag better than most industries, especially as precision ag adoption trends likely continue,” he added.
The new price target on DE stock is $340 from $435. Thein also cut the price target on Caterpillar (NYSE:CAT) to $190 from $225, while downgrading Oshkosh (NYSE:OSK) to Neutral from Buy.
