Deere shares plunge 15% as supply chain issues hurt sales. Is it time to buy?

Posted: 20 May 2022 4:33 pm
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Have Deere shares fallen low enough to make them a bargain? See why Morgan Stanley expects a 56% upside for the farm equipment maker that’s seen benefiting from the rush to boost food production.

Deere shares plunged more than 15% as the farm equipment maker grappled with supply chain issues and higher production costs, adding the stock to the long list of equities feeling the pain from persistently high inflation.

If you’re on the hunt for bargains in this market downturn, know that more than half of the analysts who track the company continue to recommend that investors either buy the stock or allocate more of their portfolio to Deere, even after the disappointing results.

Before Deere’s second quarter results were released, market expectations on the stock had been “overly optimistic,” which explains the plunge in shares after the disappointing results, according to Morgan Stanley analysts.

While Morgan Stanley expects shares to remain under pressure, its analysts see the challenges to Deere’s margin being isolated to the company’s second fiscal quarter. They have a price target of $485 on the stock, representing a 56% upside to Friday’s price of $309.95.

Deere’s second-quarter results

The farm equipment maker reported net sales of $12.03 billion in the second quarter ended May 1, missing the average analyst estimate of $13.2 billion.

The war between Ukraine and Russia has disrupted supply of agricultural products including grains and cooking oil, exacerbating food supply strains that have fueled inflation. Farmers are rushing to boost food supply to take advantage of rising prices. That’s also fueled surging demand for farm equipment produced by companies including Deere.

While demand for farm equipment remained strong, Deere has had to grapple with supply chain issues that hurt production and derailed deliveries, John C. May, chairman and chief executive officer of the company said in a press release.

“Looking ahead, we believe demand for farm equipment will continue benefiting from positive fundamentals in spite of availability concerns and inflationary pressures affecting our customers’ input costs,” May said.

Twelve of 25 analysts who track Deere are recommending investors buy the stock, while three say they should allocate more to the company than what stock indexes prescribe, according to data on the Wall Street Journal website. Nine are suggesting that investors hold on to the Deere shares they own, while one says they should pare their holdings.

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