TLDRs:
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Deere drops 2.5 percent as Jefferies downgrades stock amid tariff concerns
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Analysts warn valuation is high after recent rally and strong earnings
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Ongoing tariffs pose a roughly 1.2 billion dollar pre-tax risk for Deere
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Machinery sector softens with AGCO, CNH Industrial, and Caterpillar following lower
Deere & Co (NYSE: DE) shares fell about 2.5% on Monday, retreating from an early rally following a downgrade by Jefferies.
The farm machinery giant’s stock settled at $646.26, fluctuating between $644.44 and $669.37 during trading. Jefferies lowered its rating on Deere from Hold to Underperform, signaling caution to investors despite a raised price target of $550 from $475.
The analyst move highlights concerns that the recent stock surge may have overshot the market’s expectations, with valuation levels now sitting at roughly 35 times earnings. For investors, this means they are paying a premium for each dollar of profit, prompting debate over whether Deere’s current share price fairly reflects the coming economic cycle.
Valuation Pressures Temper Optimism
According to Jefferies, Deere’s rally has largely factored in anticipated gains from the next agricultural cycle, leaving little room for further upside. Stephen Volkmann, a Jefferies analyst, emphasized that the firm remains cautious about the broader farm market’s recovery.
“Retail sales continue to decline, and farmer economics remain weak,” Volkmann said, noting nine consecutive quarters of shrinking equipment volumes.
Even with strong first-quarter earnings, Deere’s premium valuation may make it vulnerable if agricultural cash flows fail to rebound quickly. The timing of market recovery is critical, any delay in crop purchases or continued pressure on commodity prices could shift investor sentiment sharply against the stock.
Tariff Worries Continue to Loom
The broader macroeconomic landscape has added to investor caution. Following recent tariff announcements by President Donald Trump, Wall Street saw broad declines, with the Dow falling roughly 1.6% and the S&P 500 down about 1.1%. Deere itself has projected a pre-tax tariff impact of approximately $1.2 billion for fiscal 2026, which could directly affect profit margins and operational costs.
CEO John May, however, expressed measured optimism after the earnings report, highlighting encouraging signs of demand recovery beyond major agricultural markets. Deere expects the current cycle to bottom out this year, suggesting that while near-term headwinds remain, the company anticipates stabilizing conditions in the months ahead.
Sector-Wide Weakness Mirrors Deere
The downgrade’s impact extended beyond Deere, affecting other machinery stocks. CNH Industrial slipped 2.4%, AGCO declined 1.6%, and Caterpillar edged 0.2% lower. Investors appear increasingly sensitive to both valuation levels and the ongoing uncertainty surrounding tariffs, with the sector’s performance tied closely to global trade and agricultural demand.
Looking ahead, all eyes are on Washington for potential policy changes and on spring planting demand. Deere’s next earnings report is scheduled for May 21, which will likely provide additional clarity on growth prospects and tariff mitigation strategies. Until then, market watchers are weighing whether the stock’s premium price adequately reflects both the opportunities and risks ahead.
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