BofA cuts Deere stock price target on large ag weakness

Deere reported Q2 fiscal 2026 EPS of $6.55, beating the $5.70 consensus and revenue of $13.37B versus $11.56B expected, but the stock fell 5.4% to $531.35. Management raised Construction & Forestry guidance to 20% sales growth and 10-12% margins, while maintaining full-year net income guidance of $4.5B-$5.0B and lowering Brazil industry outlook to -15% from -5%. BofA cut its price target to $607.50 from $672 while keeping a Neutral rating, citing Large Ag as the key driver.

Analysis

The market is still treating DE as a pure cyclical “big ag” proxy, but the quarter shows a more important mix shift: non-core segments are now offsetting weakness in the highest-quality earnings engine. That matters because investors often underwrite Deere on peak large-ag multiple compression; if construction and small ag can sustain elevated contribution for 2-3 quarters, downside from a single segment air pocket is more limited than the headline valuation suggests.

The bigger second-order issue is geography and tariff optionality. The Brazil outlook reset implies the softest part of the cycle may be less about U.S. farm fundamentals and more about commodity economics plus distributor inventory digestion abroad, which can bleed into channel financing and replacement demand with a 1-2 quarter lag. At the same time, tariff refund recovery is a one-off tailwind; if that benefit normalizes, earnings quality looks less clean than the EPS beat implies.

Consensus is likely overreacting to the raised target cut by anchoring on the lower price objective rather than the raised operating guidance in Construction & Forestry. The more nuanced read is that Deere may be entering a regime where mix and pricing can cushion earnings even while large ag stays muted, which argues against aggressive shorting here. The risk is that decremental margins in Large Ag persist into the next planting/ordering cycle; if order rates do not inflect by the next 60-90 days, the stock can de-rate further despite stable full-year income guidance.

Key Decisions for Investors

• Stay neutral-to-slightly long DE on weakness near the low-$520s for a 1-3 month tactical trade; the risk/reward favors a bounce if investors rotate from peak-bad-news on Large Ag to the improved C&F outlook.
• For hedged expression, pair long DE vs short CNH for 2-4 months: DE has better near-term mix support and stronger guidance visibility, while CNH is more exposed to a slower global ag reset.
• Buy DE downside protection only if it reclaims a higher multiple on no order improvement; preferred structure is a 60-90 day put spread to protect against a delayed Large Ag downgrade cycle, not an outright short.
• Long DE only on confirmation of order stabilization: use a staggered entry after the next channel/inventory read-through, because the main upside catalyst is not the quarter itself but evidence that decremental margins have troughed.