Barclays says it is still too early to buy Deere & Company
"We continue to think the ag downturn will last years, and in fact see 2016 as the first year of this downturn," analyst Robert Wertheimer wrote in a note.
"Lower sales, combined with some more minor embedded losses if used equipment values fall, keep both our near-term and long-term estimates well below consensus," the analyst added.
Wertheimer, who has an Underweight rating on the stock, expects 2016 and 2017 EPS at $3.87 and $2.92, respectively.
"We are leaving our Street-low estimates largely unchanged, and continue to expect a down 2017 in high horsepower equipment, which we believe will be challenging for Deere," Wertheimer said.
In addition, the analyst warned that annualizing 2H16 may not be the best look into 2017, as Deere noted on its call. "If revenues were to flatline from 2016 levels into 2017, we would expect sharper cost action to produce higher earnings, post restructuring," the analyst elaborated.
Wertheimer said the company has not cut its guidance sharply in 2016, thinking that this cycle would abate. But, he noted there could be another down year, which would be tough to offset with further cuts. Apart from higher commodity costs, this would lead to harsher decrementals.
"That is something seemingly not anticipated by any other estimate in consensus, and is the most likely scenario in our view," Wertheimer said.
Deere & Company closed Monday's regular trading session up 0.19 percent at $77.87. The analyst has a price target of $63.
|Feb 2016||Credit Suisse||Maintains||Outperform|
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