Deere’s Sell-Off Could Be a Long-Term Buying Chance

Key Points

• Deere stock falls over 8% after guidance cut citing tariffs, soft demand, and weak crop prices.
• Management reduced inventories sharply, setting up a supply boost if demand rebounds.
• Shares trade near technical support, offering a potential entry for long-term investors.

Deere & Co. NYSE: DE stock is dropping sharply after it lowered its full-year guidance, citing tariff uncertainty, cautious customer spending, and weaker crop prices. The stock was down more than 8% in midday trading on Aug. 14 as investors continue to punish companies projecting a slowdown. 

Industrial stocks have been one of the market’s best-performing sectors. Before the earnings report, DE stock had been outperforming the Industrial Select Sector SPDR Fund NYSEARCA: XLI, reflecting its status as a bellwether for the sector.

The headline numbers beat expectations. Third-quarter revenue rose to $15.2 billion versus the $14.8 billion consensus, and earnings per share (EPS) came in at $10.02 versus $9.57 expected. But that wasn’t enough to offset the market’s reaction to guidance.

Guidance Cut Hits All Segments

John Deere forecasted weakness across all business units and regions for the rest of the year, and tariffs were a key reason. As a company with significant international exposure, it’s logical that it will be concerned about tariff impacts.

Deere now expects reciprocal tariffs in Europe and India and higher steel costs to reduce pretax results by approximately $700 million, with about half of that impact hitting in the current quarter.

Chief financial officer (CFO) Josh Jepsen told analysts, “We’ve incorporated higher steel costs and reciprocal tariffs into our guidance, which could weigh more heavily if trade tensions escalate.”

The company is also contending with slower equipment demand. Jepsen said Deere has reduced large tractor inventories by 45%, small tractors by 30%, and earthmoving units by 25%-30%. However, he also noted that customers still opt for used equipment, creating headwinds for new equipment sales. 

Declining crop prices were a third factor contributing to the weaker guidance. Chief executive officer (CEO) John May noted that “corn, wheat, and soybean prices are at multi-year lows, which historically leads farmers to defer purchases of new equipment.”

Cautious Guidance May Be Overstated

Deere is known for issuing cautious forecasts, and management acknowledged that tariff and crop price impacts are based on assumptions that could change. This reminds investors that management is signaling what may happen, which may differ from what will happen.

The guidance cut also came alongside broad market weakness triggered by hotter-than-expected inflation data.

Jepsen emphasized that the company’s operational discipline remains intact: “Our structural improvements and cost controls position us well for when demand returns.”

Deere’s reduced inventories could create a supply tailwind if end-market demand improves. That sets up the possibility for earnings to surprise to the upside later in the fiscal year.

Does that mean the sell-off is overdone? That is not necessarily the case; selling momentum will likely stay with the bears in the short term. Analysts have not weighed in on DE stock at the time of this writing. 

An Attractive Valuation and Technical Outlook

With around 23x earnings and 26x forward earnings, DE stock trades at a premium to its historical average. However, it’s not overvalued relative to the broader sector, and the chart suggests that patient investors may have an opportunity.

The sell-off has pushed DE stock below its 50-day simple moving average (SMA), a level that had been providing support for several months. Could the stock drop more? 

Recent history suggests it can. In late March to early April, DE stock dropped approximately 14%. That slide started with the stock at about the level it is now. Plus, the MACD has crossed below its signal line, which suggests more downward momentum in the short term. 

A similar 14% drop would put the bottom near $442, aligning with a prior level of support. However, it’s important to note that DE stock rallied sharply after that point.

The long-term buy-and-hold case for DE stock remains in place, which means a meaningful drop in the company’s stock price could present a buying opportunity.