JP Morgan revealed the meeting details with several participants of industry including farmers, dealers and industry experts. The sell side company demoted Deere & Company to Underweight from Neutral mentioning difficult times for the industry and said that the equipment manufacturer of agricultural industry is expected to get impacted sharply. The firm also reduces its stock price target to $84 from previous $90.
While talking about the situation of farmers’, Ann Duignan analyst at JP Morgan said, “We believe it was clear from what we heard that the industry is currently in dire straits with the potential for a liquidity crunch for farmers into 2016.” Moreover she said that the dealers also acknowledged that there are a lot of used HP Deere tractors in company’s inventory, and this is expected to impact the sales of new tractors in the coming years.
Ms. Duignan also revised her earnings guidance for Deer &Co. as they believe that the agriculture industry will be under pressure in the coming year. She cut her fiscal year 2015 earnings estimate to $5.2 from $5.28 per share. She also reduced her fiscal year 2016 earnings estimate to $4.2 from $5.27 per share.
Recently, the company also noted that the United States Department of Agriculture’s grain stock, total 7.75 billion bushels of US corn stock increased by 11% in year over year basis. Majority of farmers kept the last year’s crop, hopeful that the price will reach a new and attractive level, but as they shrub their corn in the perfect condition, the mixture of these fresh crops with old burdensome stocks is expected to decrease the prices.
As per Tractorhouse.com, there are over 6 thousand Deere, 175 HP+ tractors used less than 4 years available in North America for sale. This shows roughly 60% of altogether used 175 HP+ tractors. The company applies 20 times multiple on its expected fiscal year 2016 earnings in order to reach $84 of new stock price target.
As per the survey conducted by Bloomberg, Out of 23 analysts, 5 gave Buy rating, 10 of them assigned Hold rating, while remaining 8 recommended Sell rating to the stock of the company. The twelve month consensus mid-point price target stood at $85.33 that shows a downside potential of almost 4.3% as compared to current stock price of the company.
The stock price was down 3.34% to $89.13 at market close on Friday May 15.
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