Deere Stock Downgraded Ahead of Earnings

J.P. Morgan sees "rapidly deteoriating fundamentals" for U.S. agriculture

May 14, 2019 at 10:00 AM
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J.P. Morgan Securities downgraded Deere & Company (NYSE:DE) stock to "underweight" from "neutral," and slashed its price target to $132 from $154. The brokerage firm cited "rapidly deteriorating fundamentals" in U.S. agriculture, due to "tariffs and excess global supply," declining Chinese demand for soybeans amid an African swine fever outbreak, and a strengthening greenback.

Nevertheless, DE stock is up 0.8% to trade at $147.45. The upside comes following a period of weak price action for the farming equipment maker, with the shares off 13.3% from their April 18 14-month peak at $169.99. Plus, during yesterday's bashing -- which saw Deere plunge 6.3% on news of China's retaliatory tariffs -- the equity closed below its 200-day moving average for the first time since Jan. 3, sending its 14-day Relative Strength Index (RSI) to 27, in oversold territory.

This volatility could continue into week's end, with Deere set to report earnings before the market opens this Friday, May 17. The stock has closed higher in the session in six of the last eight quarters, but fell 2.1% after earnings in February. On average, the shares have moved 3.9% the day after earnings in the last two years, with the options market pricing in an 8.6% move for Friday's trading.

A number of options traders are expecting Deere to rally over the next several weeks. The June 175 call is home to peak open interest of 9,544 contracts, and data from Trade-Alert points to mostly buy-to-open activity here. If this is the case, call buyers are targeting a breakout above $175 by the close on Friday, June 21, when the options expire.


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