Deere Overloved and Overbought Ahead of Report

Deere Inc. (DE) is trading lower on Thursday after a top tier Wall Street bank downgraded the stock to ‘Market Perform’. It’s testing 50-day moving average support for the first time since October 2020, just one week before the company reports Q2 earnings, when analysts expect a profit of $4.28 per-share on $10.27 billion in revenue. If met, earnings-per-share (EPS) will mark more than a 100% profit increase compared to the same quarter in 2020.

Benefiting From Price Hikes

The stock is benefiting from higher agricultural commodity prices that have forced all sorts of food price hikes in 2021. It’s also a high tech leader, transitioning into fully autonomous tractors, combines, cotton pickers, sugarcane harvesters, and loaders as well as soil preparers, seeders, and crop care equipment. The conversion is adding to the bottom line, expanding margins in a multi-billion dollar industry with few competitors.

BMO Capital Markets analyst Joel Tiss downgraded the stock to ‘Market Perform’ from ‘Outperform’ on Thursday, noting the agriculture business could be on the front end of multi-year growth cycle, but “investing in Deere may not be the best way to reap the rewards”. In addition, he warns that “even a bullish scenario for the underlying business wouldn’t cause a big jump for the stock”, which has more than tripled in price since March 2020.

Wall Street and Technical Outlook

Wall Street consensus has eased in reaction to share gains, yielding an ‘Overweight’ rating based upon 14 ‘Buy’, 1 ‘Overweight’, 6 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $287 to a Street-high $455 while the stock is set to open Thursday’s session about $30 below the median $404 target. A strong quarter may not generate much upside despite this modest placement, given extremely overbought readings after the vertical uptrend into 2021.

Deere topped out at 175 in 2018 and entered a trading range that broke down during 2020’s pandemic decline. It posted a three-year low and turned sharply higher, breaking out above resistance in August. Vertical price action stalled at 392 in March 2021 while a breakout attempt this week failed, reinforcing resistance. The stock has fallen to a 7-week low in the pre-market, highlighting weakness that could signal an intermediate correction lasting for weeks or months.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.