Is There More Upside For Deere Stock?
Deere (NYSE: DE) released its Q1 fiscal 2025 results (fiscal ends in October) last week, with revenue missing and earnings exceeding the street estimates. It reported equipment sales of $6.8 billion and earnings of $3.19 billion, compared to the consensus estimates of $7.8 billion and $3.13, respectively. Lower shipment volumes across segments weighed on the company’s performance, as the company battles with low equipment demand.
Image by Emslichter from Pixabay
How Did Deere Fare In Q1?
Deere’s revenue of $6.8 billion (equipment) in Q1 was down 35% y-o-y, with the construction and forestry segment sales down 38%, production and precision agriculture sales fell 37%, and small agriculture and turf sales were down 28% y-o-y. Lower equipment volume weighed on the overall sales. Deere’s profit of $869 million in Q1’25 reflected a sharp 50% fall from its $1.75 billion profit figure in the prior-year quarter, led by lower operating margins across segments. The earnings per share of $3.19 was much lower than the $6.23 figure in the prior year’s quarter.
Looking forward, Deere expects a 15% to 20% fall in production & precision agriculture sales, 10% cut in small agriculture & turf revenue, and construction sales to be down 10% to 15% in fiscal 2025. The expected sales decline in 2025 isn’t as steep as seen in 2024, and the company reaffirmed its earnings outlook of $5.0 billion to $5.5 billion in 2025.
What Does It Mean For Deere Stock?
DE stock, with 22% returns since the beginning of 2024, has slightly underperformed the S&P 500 index, up 28%. A slump in demand for farming equipment has recently dampened Deere’s share price performance. Looking at a slightly longer timeframe, DE stock has seen strong gains of 90% from levels of $255 in early January 2021 to around $480 now, vs. an increase of about 65% for the S&P 500 over this roughly four-year period. However, the changes in DE stock have been far from consistent, although annual returns were less volatile than the S&P 500.
Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could DE face a similar situation as it did in 2023 and 2024 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, DE looks fully priced.
We estimate Deere’s Valuation to be $453 per share, slightly below its current market price of around $480. At its current levels, DE stock is trading at 24x forward expected earnings of $19.84 per share in 2025. The 24x figure is higher than the stock’s average P/E ratio of 19x over the last two years.
Recent developments have raised concerns, particularly the new steel import tariffs, and China’s reciprocal duties on agricultural equipment in response. Though Deere faces current headwinds, the expected uptick in farm income for 2025 and potential Federal Reserve rate cuts suggest this year may mark the bottom of the cycle. This outlook, combined with prospects for renewed growth next year, justifies a modest expansion in the stock’s valuation multiple.
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