Deutsche Bank: Deere Has A Clear Path To Outperformance

Much investor attention throughout the holiday season is focused on retail and e-commerce companies, but it may be a mistake to ignore activity in other sectors, such as the agriculture equipment space.

The Analyst

Deutsche Bank's Nicole DeBlase upgraded Deere & Company (NYSE: DE)'s stock rating from Hold to Buy with a price target boost from $149 to $167.

The Thesis

Among the entire agriculture equipment sector, there are only a few companies that can offer investors a sustainable earnings per share growth profile in 2018 and beyond, DeBlase said in the upgrade note. (See DeBlase's track record here.) 

One of the names, Deere, could grow its 2018 EPS from $6.68 to $8.05 under a base case scenario and $8.30 per share or above assuming a more normal seasonal trend, the analyst said. 

Deere's 2018 revenue guidance appears to be conservative and also comes at a time when investors are being "paid to wait," DeBlase said. The company's Wirtgen acquisition is expected to be 70-cents-per-share accretive to 2019 EPS, which marks an increase from a prior estimate of 55 cents per share. But these figures don't include any synergy gains, which imply even more upside if realized, she said. 

As a whole, demand within the agriculture equipment segment is "close to trough levels," so Deere's stock multiple of 18x NTM EPS is too low versus a normal 20-22x trough multiple, according to Deutsche Bank.

There's "simply too much upside" ahead for Deere's stock and "too few attractive opportunities" elsewhere, the analyst said. 

Price Action

Shares of Deere gained more than 1 percent Monday morning to trade within striking distance of its 52-week high of $147.91.

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