Last Update 09 May 26

DE: Construction Strength And Expected Large Ag Recovery Will Support Future Earnings

Narrative Update: Deere

The analyst price target on Deere has been adjusted to reflect a more balanced risk and reward profile. Recent research highlights mixed views on valuation, with several firms raising targets by $25 to above $200, while others have flagged the stock as a bearish pick or issued downgrades even as they raised targets.

Analyst Commentary

Recent research on Deere reflects a split view, with many firms lifting price targets and emphasizing execution, while a smaller group highlights valuation risks and cyclical uncertainty. For you as an investor, it is useful to separate what is fueling optimism from what is keeping more cautious voices on the sidelines.

Bullish Takeaways

Bullish analysts point to Deere's Q1 earnings beat and raised guidance as confirmation that management is executing on both cost discipline and demand, particularly in Small Ag & Turf and Construction & Forestry.
Several research teams raised price targets into the US$700s, citing healthier Large Ag order trends and better support from Construction and Small Ag/Turf as core drivers of the growth outlook.
Some analysts argue that EPS is bottoming and see potential for earnings growth supported by a recovery in small ag and construction, with 2027 large ag growth highlighted as a possible future catalyst for the stock.
Wells Fargo describes the impact of Section 232 as "net neutral" and, together with other bullish analysts, points to a higher incremental margin outlook and supply inflection across construction and ag machinery as support for Deere's mid cycle earnings power.

Bearish Takeaways

Bearish analysts focus on valuation, flagging that the stock has moved sharply higher and, in their view, now trades well above prior peak averages. They see this as limiting upside relative to the current cycle.
Some research highlights that Deere shares are already discounting potential peak earnings several years out. This raises concern that the market might be pricing in an optimistic recovery path in agriculture ahead of actual improvements in farmer incomes and crop prices.
Even among firms lifting price targets and staying Neutral, there is caution that the stock's extended multiple could draw pushback, and that some investors may choose to take profits after the strong move post earnings.
The designation of Deere as a bearish pick by one firm, along with downgrades despite higher targets, underscores that not all analysts see the current valuation as justified by execution and cycle expectations.

What's in the News

Deere reached a settlement agreement to resolve multidistrict "right to repair" litigation in the U.S. District Court for the Northern District of Illinois, with funds to be deposited into a class settlement fund and used for class member distributions and fees, subject to court approval. The company plans to continue providing repair tools, manuals, and diagnostic software support to customers and service providers (Lawsuits & Legal Issues).
The Board of Directors elected Brent Norwood as chief financial officer, effective May 1, 2026, following an internal and external search. Norwood brings more than 20 years of experience at Deere and in finance, including roles in Construction and Forestry, John Deere Power Systems, business development, and investor relations, as well as involvement in the Wirtgen and Blue River Technology acquisitions (Executive Changes).
Deere and Tarter USA formed a manufacturing partnership to develop American-made Flex Wing Rotary Cutters under the Frontier brand, with production based in Liberty, Kentucky, using automated and robotic systems. Early dealer response has been strong, initial orders have exceeded first year forecasts, and the program has created 26 new jobs (Strategic Alliances).
Bayer and John Deere introduced a capability that allows U.S. farmers and advisors to wirelessly transfer FieldView prescriptions into John Deere Operations Center Work Plans, removing the need for thumb drives and manual file transfers. The feature is live for participants in the Preceon Ground Breakers program, with a broader U.S. launch expected in the coming weeks and other regions planned later this year (Client Announcements).
From November 3, 2025 to February 1, 2026, Deere repurchased 602,000 shares, about 0.22% of shares, for US$293.01m, bringing total repurchases under the program announced on May 28, 2008 to 184,187,000 shares, about 54.2%, for US$31.38b (Buyback Tranche Update).

Valuation Changes

Fair Value: $665.10 is unchanged, so the core valuation anchor remains the same in this update.
Discount Rate: The discount rate has risen slightly from 9.34% to 9.55%, implying a modestly higher required return on the stock.
Revenue Growth: The revenue growth assumption has fallen from 58.92% to 46.01%, signaling a more conservative outlook on top line expansion.
Net Profit Margin: The net profit margin has edged up from 17.76% to 17.83%, reflecting a slightly stronger view on profitability levels.
Future P/E: The future P/E has moved marginally higher from 27.49x to 27.64x, indicating a small change in the valuation multiple applied to expected earnings.

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Key Takeaways

Rapid adoption of advanced precision agriculture and automation tech is increasing higher-margin product sales and recurring software revenue for Deere.
Global farm market improvements and disciplined inventory management position Deere for margin gains and accelerated earnings as agricultural demand rebounds.
Rising tariffs, volatile demand, competitive pricing, and overreliance on incentives threaten Deere's profitability and margin sustainability amid cost pressures and market uncertainty.

Catalysts

About Deere

Engages in the manufacture and distribution of various equipment worldwide.What are the underlying business or industry changes driving this perspective?

Rapid adoption of Deere's precision agriculture and automation solutions (e.g., JDLink Boost, Precision Essentials bundles, See & Spray tech, and new automation features) is driving higher-value product sales and increased software engagement globally, positioning Deere to benefit from shifts toward high-efficiency, technology-enabled farming; this should lift both future revenue and net margins through higher-margin recurring software and data services.
Global improvements in farm fundamentals outside North America-such as strong dairy profitability and crop yields in Europe, expanding acreage and profits in Brazil, and stable acreage with favorable credit in India-signal a demand recovery for advanced farm equipment, which could reaccelerate Deere's revenue and earnings as end markets inflect positively.
Structural reductions in global inventory levels across all major product lines (e.g., 45% reduction in NA large tractor inventory, 50%+ down in Brazil) and a disciplined "build-to-retail" strategy allow Deere to respond rapidly to any upturn in demand, minimizing risk of production inefficiency and supporting margin improvement.
Expansion and increased effectiveness of John Deere Financial, including innovative rate-buydown products for equipment purchasers even in a high-rate environment, are enabling customers to continue investing in equipment and supporting more resilient revenue streams and stable earnings in down cycles.
Deere's continued investment in cost reductions, factory efficiency, and parts/service supports ongoing margin improvement, while announced price increases for 2026 models (2-4%) are expected to help offset tariff and input cost headwinds, supporting net margin and future earnings growth.

Deere Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Deere's revenue will remain fairly flat over the next 3 years.
Analysts assume that profit margins will increase from 10.3% today to 17.8% in 3 years time.
Analysts expect earnings to reach $8.4 billion (and earnings per share of $33.3) by about May 2029, up from $4.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $10.7 billion in earnings, and the most bearish expecting $6.3 billion.
In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 27.7x on those 2029 earnings, down from 32.6x today. This future PE is lower than the current PE for the US Machinery industry at 28.0x.
Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.55%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

Growing tariff and trade uncertainties, especially higher tariffs on Europe, India, and steel/aluminum, are materially increasing costs ($600 million forecast for FY25), which could compress operating margins and constrain future earnings if not fully offset by price realization.
North America, Deere's largest market, is experiencing significant end-market volatility, marked by a projected 30% decline in large ag equipment sales for FY25, elevated used equipment inventories, high interest rates, and cautious sentiment-indicating risk of sustained pressure on revenue and market share if these headwinds persist.
Aggressive competitive pricing, especially in construction and earthmoving equipment, is forcing Deere to deploy more incentives and accept negative price realization in segments; failure to reverse this trend could erode net margins and limit profitability over the long term.
Over-reliance on incentives and financial services (e.g., John Deere Financial split rate tools and dealer pool funds) to stimulate demand in the face of high interest rates may prop up sales in the short-term but risks future revenue quality, credit losses, and margin sustainability if underlying demand does not recover.
Growing costs from environmental, regulatory (tariff), and input inflation are requiring relentless execution on cost controls and supply chain adaptation; any misstep, inflation surprise, or inability to further reduce costs could materially impact net margins and ultimately earnings power.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $665.1 for Deere based on their expectations of its future earnings growth, profit margins and other risk factors.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $793.0, and the most bearish reporting a price target of just $500.0.
In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $47.4 billion, earnings will come to $8.4 billion, and it would be trading on a PE ratio of 27.7x, assuming you use a discount rate of 9.5%.
Given the current share price of $580.54, the analyst price target of $665.1 is 12.7% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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