UBS reiterates Deere stock Buy rating after Midwest dealer visits By Investing.com

UBS reiterated a Buy on Deere with a $775 price target, but dealer and farmer checks pointed to cautious sentiment, delayed machinery orders, and pressure from fertilizer costs. Used equipment prices have stabilized, yet the spread versus new equipment remains wide and grain gains have not kept pace with input costs, weighing on 2027 prospects. Deere reports earnings on May 21, with analysts already expecting a sales decline this year.

Analysis

The key read-through is that Deere is not facing a classic demand collapse; it is facing a capital-allocation pause. Large farms are still willing to buy, but the hurdle rate for replacing iron has risen because the spread between new and used equipment, plus financing and input-cost uncertainty, makes “wait one more cycle” economically rational. That creates a lagged revenue problem: order books can hold up near-term while dealer inventory, replacement rates, and attachment sales soften over the next 2-4 quarters.

A more important second-order effect is the pressure this puts on the whole agricultural value chain. If farmers defer machinery, they also defer precision ag software, service contracts, and parts upgrades, which can hit Deere’s higher-margin recurring revenue mix before headline unit sales roll over. Dealers may look healthy because used values have stabilized, but that stabilization can actually prolong the slowdown by preventing the forced liquidation cycle that usually resets trade-in economics and restarts OEM demand.

The market may be underestimating how sensitive 2026-2027 capex is to fertilizer/commodity asymmetry. If fertilizer stays sticky while grain prices only grind higher, farmer confidence can break quickly after a single weaker harvest or adverse weather event, turning today’s caution into outright cancellation behavior. That said, the setup also leaves room for a tactical upside reaction if Deere uses earnings to confirm backlog durability or improve margins through mix and pricing; the stock’s near-term path is likely more about guidance credibility than current quarter results.

Contrarian view: the bearish narrative may be too linear because replacement demand in ag is episodic, not smooth. A multi-quarter delay can compress into a catch-up cycle once farmers gain visibility on crop economics, meaning the present caution could be setting up a stronger 2026 order rebound than consensus expects. The real question is not whether demand weakens, but whether the market is already discounting a prolonged trough that the company can navigate with cost control and service mix.

Key Decisions for Investors

• Short-dated downside hedge: buy DE put spreads into earnings (1-2 weeks out) to express guidance risk with defined premium; best if the print confirms softer 2H order commentary but still leaves backlog intact.
• Tactical relative-value: long CAT / short DE for the next 1-2 quarters if you want industrial beta with less ag-specific exposure; Deere carries the clearer direct hit from farmer capex deferral, while CAT benefits from a more diversified end-market mix.
• If earnings/guidance signals backlog resilience, fade the initial selloff with a call spread in DE for 1-3 months out; risk/reward improves if management only trims near-term shipment assumptions without breaking FY26 production visibility.
• Monitor AGCO and CNHI as second-order shorts on any evidence of trade-in pressure worsening; they are more levered to replacement cycles and can underperform if used values stop supporting new-unit demand.
• Set a trigger to add DE on a 7-10% post-earnings drawdown only if dealer inventory and service margins hold up; that would indicate the market is pricing a recessionary ag shock that is not yet in the operating data.