Deere & Co. NYSE: DE delivered a Q2 2026 earnings report that didn't hide the ball. That transparency makes it easy to understand why DE dropped nearly 5% after the report was released. The industrial giant posted a double-digit beat, including a 15% beat in adjusted earnings per share (EPS). But the company's report revealed that the heavy lifting (no pun intended) was done by its Construction and Forestry business.
Deere & Company Today
Deere & Company
- 52 week interval
- $433.00
▼
$674.19
- Dividend Yield
- 1.22%
- The P/E ratio
- 29.92
- Target Value
- $652.23
That fits well with a blockbuster report from NVIDIA Corp. NASDAQ: NVDA which showed data center demand continues to grow and is likely to continue for several years.
But Deere's report also showed weakness in its Production and Precision Agriculture business. That has been Deere's golden goose, and it's currently a bit rotten.
And, while construction demand may play out for a few quarters, that won't significantly boost revenue. In fact, Deere reiterated its full-year revenue guidance.
That suggests that any artificial intelligence (AI) tailwind will only help earnings stagnate, rather than drive growth.
Farmers Continue to Face the Spirits
It is not easy to be a farmer under good conditions. But the past few years have been particularly brutal for the industry. Inflation for farmers is probably more than fuel. Fertilizers, seeds, and high costs of heavy equipment such as tractors and combines. All this is increasing, especially because of the conflict with Iran which has stopped traffic in the Strait of Hormuz.
That's why net sales in the Manufacturing and Precision Agriculture business fell 14% in the quarter, and Deere posted a full-year loss of between 5% and 10%. The company also forecast an operating margin of between 11% and 13%, down from 15.4% year-on-year.
For investors familiar with Deere's revenue mix, one thing in the report that stood out was a 15% net sales decline for the company's Ag business in South America and softness in Asia and Europe as well.
The company generates about 40% of its revenue outside of the United States. It has a strong presence in Latin America, generating more than $5.5 billion in annual sales. That has helped us weather the soft US dollar. But that profit will mean nothing if income falls.
The industry received potential positive news from the US-China summit, with the White House estimating that China will buy an additional $17 billion in American farm goods annually. That would go beyond the country's first soybean purchase agreement.
AI to the Rescue?
Although the core business environment looks challenging, a diversified business model has its advantages. Deere posted strong profits in its Construction and Forestry business, highlighted by strong data center demand. The company predicted net sales growth of 20% a year, with an operating margin of between 10% and 12%, up from 9% today.
Deere also predicts growth in its small Ag and Turf business. This includes specialty, utility, and compact tractors used for commercial mowing, golf course maintenance, and utility vehicles. It sometimes overlaps with the Precision Ag business, but it would be a mistake for investors not to separate the two sectors at this point.
DE Is Still a Must-Hold Stock
At 30x earnings, DE still trades at a premium to the S&P 500 and its historical average. But that valuation has come down from a recent reading of about 32x earnings. The same is true for a company's price-to-sales (P/S) and price-to-book (P/B) ratios.
What's important is that Deere has earned that premium because of its pivot to AI, which will likely pay off in the long run. The company has become part of a larger communications story, as evidenced by its inclusion in the SpaceX S-1 filing, where Deere is listed as a Starlink customer.
That alone is reason enough to hold DE and consider buying the stock on this dip, which is now nearly 20% over the past three months. But if the company is right about its profit outlook, there may be some excitement ahead of the payout. The company's safe dividend yield of 1.2% is not to be confused with the dividend yield, but it is well-executed and provides shareholder value while the company's fortunes decline.
That remains the belief of analysts who had a consensus price target of $655.45 on DE heading into earnings. With a post-cash dip, that could be as much as 20%, which could increase if the pullback continues.
At the moment, the momentum is on the bearish side. However, DE is now approaching oversold territory, which could mean traders are getting tired. That's supported by lighter-than-average volume following the earnings release.
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