Al Root

Deere earnings landed with a thud, with investors focused on an unexpected cut to the company's fiscal year 2025 net income guidance. How Wall Street, and the stock, reacted to the quarter was an even bigger surprise.

Thursday, Deere reported fiscal third-quarter earnings per share of $4.75, better than the $4.58 analysts were looking for. The problem was that the midpoint of management's range of forecasts for net income in fiscal 2025, the year through October, is now $5 billion. The prior range, provided in May, had a midpoint of $5.15 billion.

Investors don't like negative surprises in quarterly results, but this one didn't come out of the blue. Everyone knows that 2025 has been tough, and investors are betting on improvement in 2026.

"We see nothing in today's results that calls into question the thesis that 2025 should mark a bottom in the ag cycle," wrote Jefferies analyst Stephen Volkmann in a Thursday report. He rates shares Hold and has a $510 price target for Deere stock.

The stock was up 1.7% at $487.02 on Friday morning, after falling 7% on Thursday. The S&P 500 and Dow Jones Industrial Average were flat and up 0.5%, respectively.

"Gets worse before it gets better," wrote Bernstein analyst Chad Dillard in a Thursday report, adding that "downside risk" is priced into the stock. He rates shares Hold and has a $487 price target for the shares.

Only a few Wall Street analysts cut their target prices for the stock in response to the result. One firm raised its number.

Overall, the average price target among analysts tracked by FactSet ticked down to about $536 from closer to $549 at the end of the second quarter. Target prices were down roughly 2% over the past few weeks.

Analysts' continued confidence, and the fact that guidance for 2025 was reduced only marginally, raise the question of why the stock fell hard on Thursday. The answer is probably just that investors had expected too much. Coming into the earnings, Deere stock was up north of 20% for the year with a gain of more than 45% over the past 12 months.

And Deere peer AGCO had just reported better-than-expected second-quarter earnings on July 31. Its shares jumped 11% in response. CEO Eric Hansotia said he expected demand to improve around the globe in 2026.

An improvement is still the expectation. Deere management said the company plans to produce in line with retail sales in 2026, which would mark an improvement.

In 2025, Deere has been producing fewer tractors and equipment than its dealers have been selling as it seeks to restore inventories to normal levels. Less production and smaller wholesale volumes mean higher per-unit costs and lower sales.

Wall Street has some doubts about the recovery. "With the outlook staying one of caution...it seems upside scenarios for fiscal year 2026 are reducing," wrote BMO analyst Joel Jackson in a Friday note. He rates shares Hold and has a $460 price target for the stock.

"Headwinds persist," wrote Baird analyst Mig Dobre on Thursday. He rates shares Hold and lowered his price target by 6% to $488.

Overall, 44% of analysts covering the company rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.

Barron's wrote positively about Deere recently, believing 2025 was the bottom of this agricultural cycle and that Deere's investments in automation and AI would improve margins in the future. That article appeared in mid-July with the stock just over $500.

We still believe an improving backdrop that would help the stock is on the way. Predicting when that happens is as hard as predicting the weather.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

August 15, 2025 11:29 ET (15:29 GMT)

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