Deere (DE) faces a constrained farm equipment recovery that could take time to materialize, given weak international markets and cost pressures that are weighing on farmer capital spending, BofA Securities said Friday.
The agricultural equipment manufacturer on Thursday raised the lower ends of its net income and cash flow guidance ranges, citing a strong fourth-quarter order book.
"New inventory is in a good shape and there is huge torque to an (agricultural) recovery," BofA analysts including Michael Feniger said.
But there is some hesitation "on the shape of this farm equipment recovery into next year," Feniger said.
Deere reduced guidance for Brazil and the European Union as both markets remained soft, while farmer economics are constrained by high fertilizer and diesel costs, the analyst said.
"We sense pricing still just covering costs (in 2027)," Feniger said.
Deere appears to be constructive on its small agriculture business, though data indicate slowing demand for low-horsepower tractors, according to the research note. The company expects small agriculture and turf net sales to increase about 15% in fiscal 2026.
BofA raised the price objective on Deere's stock to $667 from $607.50 and reiterated its neutral rating.
"While we believe an elevated recovery multiple is warranted, valuation is at the higher end of the recovery multiple range," Feniger said. "As a result, positive (earnings per share) revisions on a farm equipment cycle are required from here -- yet we see a constrained farmer capital spending backdrop given soft ag fundamentals."
Deere's shares rose 1.9% in Friday trading, and have gained 36% this year.
Caterpillar (CAT) raised its full-year revenue outlook earlier this month as the heavy equipment manufacturer generated more than $20 billion in sales for the first time in a single quarter.
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