Will Investors Trust a New Buy Rating on Deere?

Deere & Co. (NYSE: DE) is a company that could currently use a break. The global equipment manufacturing company has suffered the same fate as other U.S. companies when it comes to a strong dollar and weak demand from the former growth markets.

A new research report from Argus, a truly independent research firm free of any brokerage conflicts, suggests that both the currency and commodities level may finally be near inflection points.

Argus raised Deere to Buy from Hold with an $85.00 price target. After earnings have been consistently declining for several quarters, the firm thinks that margins are near all-time low levels and may be able to rebound over the next two to three years.

Much of the call is based on a cheap valuation now that the shares have sold off handily. The firm calls Deere a well-managed company. Wednesday’s report said:

Given the currency and commodity trends, Deere’s earnings have been consistently declining for several quarters. But we think margins are near all-time low levels and will rebound over the next 2 to 3 years as conditions improve. This well-managed company’s stock is now trading near attractive valuation levels.

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What stands out is that call is after earnings were down handily but above expectations. The Argus report noted:

Deere reported fiscal first quarter revenue of $5.5 billion, down 14% from the same period a year ago. Net income fell 34% to $254 million, as the net margin declined to 4.6% from 6.1% in the same period a year ago. Diluted EPS fell 29% to $0.80, though earnings beat the consensus estimate of $0.70 per share.

Management also reported guidance for 2016 for equipment sales to drop by 10%, worse than its prior expectation of an 8% drop. Net income expectations were lowered to $1.3 billion from a prior target of $1.4 billion, and the new estimate implies a net margin of approximately 5.5%.

Deere shares were last seen up 0.5% at $77.50 Wednesday afternoon. The trading volume was still light at about 1.6 million shares, versus an average daily volume of 3.6 million shares.

Deere’s consensus price target from analysts at Wall Street firms is $75.67, and it has a 52-week range of $70.16 to $98.23.