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UPDATE 1-Deere shares gain; analysts split on outlook
Mon Nov 1, 2004 11:55 AM ET
(Adds comment from other analysts; rewrites)
CHICAGO, Nov 1 (Reuters) - Shares of farm equipment maker Deere & Co. (DE.N: Quote, Profile, Research) rose more than 3 percent on Monday on the belief the stock is undervalued given a favorable sales outlook.

David Raso, an analyst with Citigroup Smith Barney, changed his rating on the company to "buy" on Monday. Over the weekend, Barron's had an article that noted the Deere stock was near its 52-week low despite a favorable outlook for the farm-equipment maker next year.

Raso's change is the latest in a series of analysts' moves ahead of Nov. 23, when Deere reports fiscal fourth-quarter results and gives its outlook for fiscal 2005.

Analysts' current 2005 estimates range from $4.50 to $6.30 a share, an exceptionally wide range, which averages to $5.72, according to Reuters Estimates.

That compares with an average 2004 range of $4.70 to $5.25, with an average of $5.10 a share. In fiscal 2003, Deere earned $2.64 a share.

Some investors apparently are worried the company's 2005 outlook may fall short of expectations. Several analysts downgraded Deere stock in mid-October, saying all the good news is already priced into Deere and that farm equipment sales may slow next year.

"Data clearly are beginning to suggest a cyclical peak in farm equipment becoming likely in 2005," wrote Eli Lustgarten, an analyst with J.B. Hanauer & Co., who reiterated his "underperform" rating on Monday.

He said the Barron's article "focuses on the past, but neglects the present and the future."

Lustgarten said the average corn price is now projected to be $1.75 to $2.15 a barrel, with a midpoint of $1.95 a barrel.

"A corn price below $2 has never resulted in a good farm equipment market," he wrote.

Raso disagreed.

"The farm economy enters 2005, despite the low crop prices, in better spirits than we would have expected to hear, which bodes well for equipment buying for spring planting system at a minimum," he wrote.

More fuel could be added to that fire on Nov. 9, when the U.S. Department of Agriculture updates the government's 2004 net income estimate. Both Raso and the Barron's article said an upward revision could boost expectations for 2005.

Deere shares were up $2.22, or 3.7 percent, at $62 in midmorning trade on the New York Stock Exchange.

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