Jefferies Downgrades Deere Rating, Believing Valuation Fully Reflects Agricultural Recovery Expectations

2026-02-24 04:45:20

Investing.com - Jefferies downgraded Deere & Co to Underperform, stating that the stock has fully reflected the broad recovery of the agricultural cycle, despite ongoing declines in American farmers’ income. The stock fell over 1% in pre-market trading on Monday.

The stock price has more than doubled since the 2022 cycle lows, with approximately a 40% increase over the past seven weeks. According to the broker’s data, the current P/E ratio is about 35, well above the previous peak average of around 23.

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Jefferies’ target price is set at $550, based on a 15x P/E ratio of its forecasted peak earnings in 2029.

The firm states that the market is currently undervaluing the next cycle’s peak earnings of about $50 per share in 2027 or 2028, which is roughly 45% higher than the previous peak of about $34.50 in 2023. However, the broker’s own forecast pushes the earnings peak to 2029.

The broker notes that Deere remains one of the highest-quality companies in the machinery industry, citing product innovation, market penetration, and a large proprietary agricultural database. However, it believes the current valuation already reflects both a full recovery in sales and higher valuation multiples.

Jefferies expects the agricultural cycle to bottom out this year but states that a sustained rebound depends on improvements in farmers’ income, which the USDA forecasts will decline by about 15% in 2026. Lower crop prices, higher input costs, trade volatility, and high debt levels are weighing on the agricultural economy and equipment demand.

Sales of large machinery in North America have declined for 29 consecutive months, down about 39% from the 2023 peak. Although the decline is slowing and inventories are normalizing, the company notes that past downturns have lasted longer, including a 43-month decline from 2014 to 2017.

Jefferies says Deere needs to achieve a faster and stronger earnings rebound to justify its current valuation, but given slow technology adoption and weak agricultural fundamentals, it considers this unlikely.

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