Buy, Sell, Or Hold Deere Stock?

The stock price of Deere (NYSE: DE) surged 8% on November 21, after the company reported upbeat fiscal Q4 results (fiscal ends in October). It reported equipment revenue of $9.3 billion and earnings of $4.55 per share, compared to the street estimates of $9.3 billion and $3.90, respectively. However, the company’s outlook for fiscal 2025 was bleak, and we think that DE stock is now overvalued. Let’s dive deeper into the results and its impact on the stock.

How Did Deere Fare In Q4?

Deere’s revenue of $9.3 billion (equipment) in Q4 was down 32% y-o-y, with the construction and forestry segment sales down 29%, production and precision agriculture sales fell 38%, and small agriculture and turf sales were down 25% y-o-y. The company continued to benefit from a robust pricing environment, but equipment volume declined. Deere’s profit of $1.2 billion in Q4’24 reflected a sharp 47% fall from its $2.4 billion profit figure in the prior-year quarter, led by lower operating margins across segments. The earnings per share of $4.55 was much lower than the $8.26 figure in the prior year’s quarter.

Looking forward, Deere expects a 10% to 15% fall in sales across segments, and its net earnings to be in the range of $5 billion and $5.5 billion. While the sales decline in 2025 isn’t as steep as seen in 2024, its earnings outlook fell short of $5.9 billion per the street estimate.

What Does It Mean For Deere Stock?

The changes in DE stock lately have been far from consistent, although annual returns were less volatile than the S&P 500. Returns for the stock were 29% in 2021, 27% in 2022, -5% in 2023, and 11% so far this year. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could DE face a similar situation as it did in 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, DE stock looks like it is slightly overvalued. We estimate Deere’s Valuation to be $372 per share, around 15% below its current market price of around $440. At its current levels, DE stock is trading at 21x forward expected earnings of $20.90 per share in 2025. The 21x figure is much higher than the stock’s average P/E ratio of 15x over the last five years.

Deere’s business is cyclical, and its sales volume have likely entered mid-cycle levels after hitting a cyclical peak in 2023. Deere may continue to face headwinds in the near term, amid lower farm income and elevated interest rates. This has led farmers to postpone any large agricultural equipment purchases. Notably, the U.S. farm income is expected to decline for a third year in a row in 2025. Also, Trump has threatened to impose 200% tariffs if Deere were to shift its manufacturing facility to Mexico. ^[1] Now, Deere’s outlook of 10% to 15% fall in sales isn’t that bad considering the factors above. It may warrant a slight uptick in valuation multiple, but we think 21x P/E ratio is high.

Furthermore, investors should take into account the broader risks as well. There are three factors – tariffs, deportations, and low taxes – that would make it difficult for the Fed to fight an inflation spike in coming months. And if the U.S. Fed were to pause the rate cuts, and inflation inches up, Deere may continue to see pressure on its equipment volume. Notably, the agricultural sector will be hit more with deportations, as it already struggles with labor shortages. Our take on Could S&P Crash More Than 40%? has more details on the above factors.

While DE stock looks like it is slightly overpriced, it is helpful to see how Deere’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 11/22/2024
[2] Cumulative total returns since the end of 2016

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1. Trump threatens John Deere with 200% tariffs if production moves to Mexico, Gram Slattery and Kanishka Singh, Sep 24, 2024, Reuters [↩]