Deere & Company DE shares have gained 11.5% year to date, outperforming the Zacks Manufacturing - Farm Equipment industry’s 10.6% growth. In contrast, the broader Zacks Industrial Products sector has declined 5.1% and the S&P 500 slipped 4.1%.

DE Stock's YTD Price Performance vs Industry, Sector & S&P 500

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With this outperformance, investors may rush to add the stock to their portfolio. However, before doing so, it would be prudent to evaluate the stock’s growth prospects as well as associated risks to arrive at a well-informed investment choice.

Weak Demand Weighs on Deere’s 1Q25 Performance

DE has been reporting year-over-year decreases in sales and earnings in the past five consecutive quarters. The declines have worsened through the quarters, with the company witnessing a 48.8% plunge in the first quarter of fiscal 2025, with equipment sales tanking 35.1%.
The dismal performance was attributed to lower shipment volumes across all segments amid sluggish demand. Deere also noted a growing preference among buyers for used machinery rather than new equipment.

Agricultural and Turf equipment sales moved down 34% in the quarter, with volumes falling 35%. Farmer spending has been muted amid low commodity prices. DE’s Construction and Forestry segment saw a year-over-year decline of 38% in sales in the quarter as volumes slumped 37%.

Low Crop Prices Remain Challenging for DE

The U.S. Department of Agriculture forecasts a 29.5% year-over-year increase in net farm income to $180.1 billion for 2025. This follows the 19% and 6% declines in net farm income witnessed in 2023 and 2024. However, the rebound will be mainly driven by the $33.1-billion year-over-year increase in direct government farm payments.

Meanwhile, total crop receipts are forecast to decrease 2.3% from the 2024 level due to lower soybeans and corn prices. This could weigh on the demand for new farming equipment.

Deere’s Weak FY25 View Triggers Downward Estimate Revisions

DE anticipates net sales for Production and Precision Agriculture to decline 15-20% year over year in fiscal 2025. Sales of Small Agriculture and Turf are expected to drop 10%, reflecting market uncertainty, high interest rates and increased inventory levels, partially negated by the impacts of the U.S. government subsidies on farm incomes.

Sales of Construction and Forestry are projected to move down 10-15%.

Deere expects net income for fiscal 2025 between $5 billion and $5.5 billion, much lower than the $7.1 billion reported in fiscal 2024. The company has taken steps to reduce costs, and intends to cut down production volumes and manage inventory in the wake of the challenging market conditions.

The impacts of import tariffs by the United States and retaliatory actions from other countries are other headwinds for the company.

Analysts seem to be losing confidence in the DE stock. This is evident from the downward earnings estimate activity for fiscal 2025 and 2026, as seen in the chart below.

Image Source: Zacks Investment Research

Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

The consensus estimate for fiscal 2025 earnings suggests a year-over-year decline of 24.7%. However, the same for fiscal 2026 suggests year-over-year growth of 13.04%.

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DE Stock Seems Overvalued

Deere is currently trading at a forward 12-month Price/Earnings of 23.29X, at a 7% premium to the industry’s 21.84X. It is also higher than DE’s five-year median of 15.79X. The company’s Value Score of D suggests that the stock is not so cheap and indicates a stretched valuation at this moment.

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The DE stock also seems relatively more expensive than other industry players, such as CNH Industrial CNH and Komatsu KMTUY, which are trading significantly lower at 16.81X and 10.75X, respectively.

Factors Supporting Deere’s Long-Term Story

Increased global demand for food, driven by population growth and rising standards of living, will support the demand for agricultural equipment in the long term. In the United States, the agricultural machinery market is forecast to reach $42.05 billion in 2025 and $57.08 billion in 2030, seeing a compound annual growth rate (CAGR) of 6.3%.

With increasing farm sizes, there is a greater need for labor, but escalating labor costs are prompting farmers to turn to mechanization. Deere has been continuously focused on launching products equipped with advanced technologies and features to keep up with customers' evolving demands. Precision agriculture technology is expected to be a key catalyst. The demand for the company’s construction equipment will be supported by increased infrastructure spending.

Buy, Sell or Hold the DE Stock?

Those who already own this Zacks Rank #3 (Hold) stock should stay invested to benefit from the long-term demand prospects for both agricultural and construction equipment. However, new investors should wait for a more favorable time to accumulate the stock, considering expectations of low commodity prices, the impacts of tariffs, downward estimate revision activity in earnings and expensive valuation.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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