UBS Comments on Deere (DE), Sees Ag Equipment Trough Beyond 2015

While shares of Deere & Co. (NYSE: DE) are up over 2% Monday following three sell-side upgrades, analysts at UBS are taking a more subdued approach as they see the agriculture equipment trough beyond 2015.

UBS analyst Steven Fisher believes the ag downturn is accelerating. He commented, "DE forecasts FY15 net income to decline 40% YoY to $1.9b, accelerating from FY14's 11% decline. Implied EPS of $5.36 is based on 4Q share count, although we expect DE to continue repurchasing shares in FY15 (UBSe $1.3b). FY15 guidance reflects 2015 Ag & Turf equipment sales down 20%, and assumes a 25-30% decline in NA ag industry sales, driven by declining high-horsepower tractor and combine sales."

He added that while guidance suggests trough in FY15, downside could extend through FY16. "Deere's guidance suggests the 20% decline in Ag & Turf represents "trough" levels," Fischer commented. "The 20% decline would bring DE back to the run rate of revenues in mid-FY11. At that point, industry trailing 12M NA row crop tractor sales were ~31,200 units vs. the prior 5 year average of ~26,500. With this in mind, we think there could still be more downside to earnings beyond FY15. If that plays out, we think there is more downside risk to the stock from current levels."

The firm lowered FY15 estimate to $5.50, from $6.25. They reduce FY16 EPS estimate to $4.90, from $6.00. They reduce FY17 estimate to $5.35, from $6.65.

The firm maintained a Sell rating on DE, while lowering their price target from $75 to $74.

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