On Dec 20, we reiterated our Neutral recommendation on
Deere & Company
) based on expected benefits from recovery in the construction
sector and investment in Brazil. However, lower commodity prices
and farm incomes continue to be major concerns for this producer
of agricultural and forestry equipment, construction equipment
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In line with its intention to invest its resources and thereby
boost its core businesses, Deere is reviewing strategic options
for the John Deere Water division and entered into an agreement
to sell 60% of John Deere Landscapes ownership for $300 million
in Oct. The John Deere Water division manufactures and
distributes precision agricultural irrigation equipment and
supplies. John Deere Landscapes distributes irrigation equipment,
nursery products and landscape supplies, including seed,
fertilizer and hardscape materials, primarily to landscape
Deere expects worldwide sales of construction and forestry
equipment to increase approximately 10% for 2014. The gain
reflects further economic recovery and higher housing starts in
the U.S. as well as sales increases outside the U.S. and Canada.
In September, Deere completed the purchase of Bauer Built
Manufacturing in order to expand its portfolio of agricultural
equipment and enhance its ability to serve larger farms in key
markets globally. Demand for the Deere Bauer Series planters have
grown quickly in the last few years predominantly in North
America. Apart from North America, there is lot of potential in
Brazil and Argentina where large farms demand such highly
Despite these positives, the risks surrounding the stock have
forced us to maintain a neutral stance on Deere. Lower commodity
prices and farm incomes, lower equipment sales outlook,
weakness in European markets, and higher production costs and
research and development costs associated with interim Tier 4 are
detrimental to the company's performance.
Other Stocks to Consider
Deere currently retains a Zacks Rank #3 (Hold). Some
better-ranked stocks in the retail sector include
H&E Equipment Services Inc.
Alamo Group, Inc.
). While Kubota carries a Zacks Rank #1 (Strong Buy), Alamo Group
and H&E Equipment Services hold a Zacks Rank #2 (Buy).