Deere Stock: Buy, Hold, or Sell? | DE Stock Analysis
Summary
Parkev states that Deere & Company (DE) has seen phenomenal price action, up over 76% in five years and 34% year-to-date, following his previous "buy" recommendations. He notes that Deere is a cyclical business, benefiting from increased construction spending and commodity prices, although facing headwinds from increasing trade barriers affecting its operating profit margins. While the company's operating profit margin trends upward long-term, it has recently declined from 25% to 20.5%, and its return on invested capital (ROIC) has significantly fallen to 5.25%, which is below its weighted average cost of capital. Furthermore, for dividend investors, the 1% dividend yield is unattractive compared to 10-year government bonds (4.6%) or money market accounts (4%).
Parkev's updated discounted cash flow (DCF) valuation for Deere shows an intrinsic value per share of $635, which is favorable compared to the current market price of $625, suggesting it is fairly valued by this metric. However, looking at the forward price-to-earnings ratio of 27.5, the stock appears slightly overvalued, being near its most expensive point since early 2024. Considering a holistic valuation, Parkev concludes that Deere stock is slightly overvalued. Consequently, he is downgrading Deere from a "buy" to a "hold" rating. He advises investors against new purchases at current levels, suggesting it's an appropriate time to hold existing shares. For those looking to add to their portfolio, he recommends waiting for at least a 10% pullback in the stock price. His conviction level for this "hold" rating is medium.
Mentioned Stocks
Reasoning: Parkev explains that while Deere & Company has shown excellent performance over several years with his "buy" rating, its current valuation suggests it's no longer a buying opportunity. The stock has surged over 76% in five years and 34% year-to-date. Although his discounted cash flow model suggests an intrinsic value of $635, favorable against the market price of $625 (fairly valued), the forward price-to-earnings ratio of 27.5 indicates it's slightly overvalued, near its historical peak since early 2024. Furthermore, its ROIC has dropped to 5.25% (below WACC), and the 1% dividend yield is unattractive compared to other investment alternatives like 10-year government bonds (4.6%). Parkev states that the accumulation phase is over, and investors should now hold their shares, recommending a wait for at least a 10% pullback before considering adding to their position. He explicitly downgrades the stock to a "hold" from a "buy".