3 Reasons Goldman Sachs Upgraded Deere To Buy

Goldman Sachs’ Jerry Revich believes Deere & Company (NYSE: DE) is well positioned to deliver robust operating leverage in a recovery.

Revish upgraded the rating on the company from Neutral to Buy, while raising the price target from $87 to $105. The analyst expects 25 percent upside potential for the stock.

Reasons For Upgrade

“Amid a challenging industrial end market outlook, we now prefer Ag to Truck and Construction Machinery,” Revish said, explaining that “high horse-power ag equipment demand is at a 30+ year trough.”

In addition, soybean export demand in the U.S. represents the first inflationary agricultural data point in the current cycle, with risk seeming to be skewed to the upside, given the potential weather conditions of La Niña.

Revich also believes there could be potential for more than 35 percent incremental margins for Deere in a recovery scenario.

The mid-cycle EPS estimate has been raised from $6.25 to $7.50, “driven by higher operating leverage due to R&D and overhead leverage.”