Research firm Piper Jaffray downgraded farm machinery maker Deere (DE - Get Report) to Underweight, its equivalent of a sell rating, from Neutral. Demand for farm machinery will be weak as corn and grain prices drop due to exceptionally large crops, the firm predicted.
CROPS LOOK EXCEPTIONALLY STRONG: After speaking with farmers, agronomists and dealers, Piper analyst Brett Wong says that "growing conditions have been extremely favorable." He predicted that U.S. corn yields would be strong, as the crop appears to be the best "we have ever seen," according to the analyst. Weather conditions have been favorable and are unlikely to hurt the crop going forward, Wong added. Corn prices will probably be pressured further, and grain prices will also "remain weak," the analyst stated. In this environment, demand for farm machinery will probably decline, warned Wong. Looking overseas, the analyst predicted that demand for farm equipment in Brazil would rebound due to favorable policy changes by the new government there. However, Wong said he was not certain about the impact of Brexit on European demand, and he predicted that sales of farm equipment on the continent would decline modestly. Wong lowered his estimates for Deere and predicted that its multiple would drop further. He cut his price target on the stock to $67 from $76.
PRICE ACTION: In early trading, Deere sank 3.3% to $77.45, AGCO retreated 3.25% to $47 and CNH Industrial dropped 2.5% to $6.55.