John Deere tractors.
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J.P. Morgan raised its rating on Deere stock to Hold from Sell, but it isn’t that the analyst had a change of heart. A different person is tracking the stock now.
That might be the reason shares weren’t getting a bigger boost early on Monday. Deere stock was up about 0.8% in premarket trading, while futures on the S&P 500 and Dow Jones Industrial Average both gained about 0.2%.
In any case, Deere stock doesn’t appear to need help these days. The prospects for sales of tractors and other farm equipment look strong.
J.P. Morgan analyst Tami Zakaria, who took over coverage for longtime analyst Ann Duignan a couple of months back, changed the bank’s call. “Having assumed coverage of the Machinery, Engineering & Construction sector in late January, we are updating our end market outlooks and stock recommendations,” wrote Zakaria in a Monday report.
She added Buy-rated Deere peer AGCO ( AGCO
) to J.P. Morgan’s focus list, reserved for the broker’s best ideas, and upgraded Deere “given our belief that the Ag upcycle will be extended through 2023 driven by current geopolitical events and high grain prices, together with ongoing supply chain constraints.”
U.S. wheat, soybean, and corn prices are up roughly 38%, 27% and 25%, respectively, year to date. The Russian invasion of Ukraine is a big reason why.
The J.P. Morgan commodities team believes Ukrainian corn production will drop 40% year over year, wrote Zakaria. Twenty percent of the Ukrainian wheat planted this past winter likely won’t be harvested this spring, she said. There is also the problem of boycotts of Russian wheat, which account for roughly 16% of global exports.
The higher prices mean U.S. and European farmers can get more money for their crops, which means they will have more to spend on equipment.
Those factors are reflected in Deere’s and AGCO’s stock prices, to some extent. Coming into Monday trading, Deere shares were up about 27%, while AGCO stock had gained about 28%.
About 64% of analysts covering AGCO stock rate shares Buy, while the comparable figure for Deere is about 60%. The average Buy-rating ratio for stocks in the S&P is about 58%.
Valuation might be why. AGCO stock is viewed a bit more favorably. Deere stock trades for about 17 times estimated earnings for the current year, while AGCO sells for about 11 times.
Write to Al Root at [email protected]
