Deere's (DE) prolonged earnings downturn is expected to end in 2026, followed by a recovery in 2027, UBS Securities said in a Friday research report.

Agriculture fundamentals are close to bottoming out, and a positive inflection in the company's earnings could begin to be priced in over 2026. Margins could increase by 270 basis points in fiscal 2027, driven by expected robust retail demand for larger agricultural machinery, analysts wrote.

Tractor sales are expected to reach trough levels by 2025-end, while a rebound in US nonresidential construction in the second half of 2026 will support the company's construction and forestry segment. Further inventory reductions in 2026 will also support production upside in 2027, according to the note.

UBS said it raised its fiscal 2027 and 2028 EPS estimates to $23.20 and $26.20, respectively, from $22.75 and $25 earlier, reflecting higher sales and margins. The brokerage cut its fiscal 2026 EPS guidance to $17.90 from $20, which reflects a "pushout of the recovery" in the agriculture cycle.

The firm upgraded the stock to buy from neutral and adjusted its price target to $535 per share from $545.

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