Merrill Lynch cited weak demand conditions in the agricultural equipment industry as the reason for reducing Deere & Co.’s price objective
On Monday in a research note, Bank of America Merrill Lynch reaffirmed a rating of Neutral on Deere & Company stock, and cut its price target to $82 from $85. The bank released the note following by a tour of investor to Deere’s tractor facility situated in Waterloo, lowa. The earnings per share forecast for the company were also reduced to $.35 from $4.5 per share for FY16 and to $4.65 from $4.85 per share for fiscal year 2017. The main reason behind this was the slump in agricultural equipment recurrent demand.
Deere & Company is the biggest agricultural equipment manufacturer, including gardening and farming. It also has forestry and construction, and financing processes, but generates majority of its revenue from the division of equipment.
The company’s stock has performed better since the beginning of 2015, going up by 6.63% till mid of August, relative to the S&P 500 index rising 1.59%, since it dropped, as the manufacturing company missed revenue expectations in third quarter of FY15, taking its year to date performance to -10.51%.
Deere’s earnings report also explained complex issues for the agricultural equipment market, because of the pressure from declining demand from low oil prices and declining farm incomes. This result in the company to cut its fiscal year 2015 revenues expectations by almost 25%, which contains a 5% foreign exchange impact
In another investor note, Ross Gilardi, an analyst at Bank of America said that the second hand equipment industry is sluggish. This puts more pressure on Original manufacturer of equipment like Deere. The falling demand has caused oversupply in the second hand equipment industry. As per Mr. Gilardi, dealers might try to cut inventory levels in the coming future. Till then, the price changes will discourage the buyers from buying expensive latest equipment, which will damage Deere’s revenue.
One more factor revealing Deere to threats is the trend of insourcing amid major OEMs. Its Waterloo facility makes equipment parts like shafts and gears, axle and transmissions rather than outsourcing it. This increases the chances of cyclical demand threat, keeping in mind the present situation.
On the basis of these factors, Merrill Lynch has cut the company’s target price. However, it has reiterated is Neutral rating. The street analysts look to agree with the bank’s evaluation. Out of 24 analysts having coverage on the stock, 12 gave it a Hold, while the average price target is $83.29.
Bank of America stock was down 0.89% to $15.56 at close of market on Tuesday.
No comments:
Post a Comment