Is Deere (DE) a Buy Before Earnings Amid Sector Volatility and Macroeconomic Headwinds?

Deere & Company (DE) has long been a bellwether for the agricultural and construction equipment sectors, but its recent performance has sparked debate about its investment potential. With Q2 2025 earnings behind it and Q2 2026 earnings on the horizon, the question looms: Is DE a buy ahead of its next report, or does the stock's current valuation reflect too much optimism in a sector grappling with macroeconomic headwinds?

Recent Performance: Resilience Amid Downturn

Deere's Q2 2025 results revealed a 16% decline in net sales to $12.76 billion and a 23% drop in net income to $1.804 billion. While these figures highlight the challenges of a cyclical downturn, the company exceeded earnings per share (EPS) estimates by 16.97%, reporting $6.64 versus $5.56 expected. This outperformance, coupled with a 3.78% stock price jump post-earnings, suggests operational discipline and investor confidence in Deere's ability to navigate tough conditions. Historically, Deere has demonstrated a consistent ability to beat expectations, with 11 such events occurring over the past three years.

However, the broader sector is under pressure. Global farm and construction activity has slowed, exacerbated by trade tensions, currency headwinds, and elevated interest rates. For example, U.S. tariffs on steel and machinery are projected to add $500 million in annual costs for Deere, while geopolitical tensions in regions like Russia-Ukraine and U.S.-China trade dynamics further complicate demand.

Earnings Expectations and Strategic Catalysts

Deere's Q2 2026 earnings, expected in mid-May 2026, will be critical. Analysts project an EPS of $5.80 for the quarter, with a full-year 2026 consensus of $18.84. These estimates assume a rebound in agricultural demand and the success of Deere's $20 billion U.S. investment plan over the next decade, which includes precision agriculture and autonomous technology.

The company's forward guidance emphasizes cost-competitiveness and innovation. For instance, Deere's 18.8% operating margin in equipment operations during Q2 2025 underscores its ability to maintain profitability even in a downturn. Additionally, its Financial Services segment has remained stable, providing a buffer against equipment sales volatility.

Peer Comparisons: A Mixed Bag

Deere's valuation multiples are stretched relative to peers. Its trailing P/E of 27.3 exceeds its 5-year average of 22.5 and is higher than Caterpillar's (CAT) 25.1. However, Deere's profitability metrics—16.36% net margin and 46.15% return on equity—outperform Caterpillar's 12.91% and 55.93%, respectively. AGCO, another peer, saw a 18.8% revenue decline in Q2 2025 but beat estimates by 5.9%, with its stock rising 6.5%.

While Deere's valuation appears rich, its strategic focus on precision agriculture and electrification positions it to capture long-term growth. For example, its investment in AI-driven crop management systems and autonomous tractors could redefine farming efficiency, creating a moat against competitors.

Valuation and Macro Risks: A Tug-of-War

Deere's current price-to-sales ratio of 1.8 is above its 5-year average of 1.5, indicating a premium for growth. However, intrinsic valuation models suggest the stock is overvalued. Alpha Spread's Base Case intrinsic value is $382.63, versus a current price of $506.10—a 24% premium. This disconnect raises questions about whether the market is pricing in unrealistic optimism.

Macro risks remain significant. Elevated interest rates increase borrowing costs for farmers, potentially dampening equipment demand. Commodity price volatility also threatens purchasing power, while U.S. tariffs on steel and machinery add $500 million in annual costs. Geopolitical tensions, such as China's phosphate export restrictions and U.S.-China trade dynamics, further cloud the outlook.

Investment Thesis: Cautious Optimism

Deere's stock is a double-edged sword. On one hand, its operational resilience, strategic investments, and strong EPS guidance suggest long-term potential. On the other, valuation multiples and macro risks create a high hurdle for near-term gains.

For investors, the key is timing. A pullback to the $500–$510 range could offer a more attractive entry point, especially if accompanied by positive catalysts like tariff relief or stronger commodity prices. However, chasing the stock at current levels risks overpaying for uncertain growth.

Conclusion: A Buy for the Patient, Not the Impatient

Deere's Q2 2026 earnings will be a pivotal moment. If the company can demonstrate progress in mitigating macro risks while maintaining operational discipline, the stock could justify its premium valuation. However, investors should approach with caution. A strategic buy might make sense for those with a long-term horizon and a tolerance for volatility, but short-term traders may find the risks outweigh the rewards.

In a sector defined by cycles, Deere's ability to innovate and adapt will be its greatest asset. Whether it's a buy before earnings depends not just on the next report, but on how well the company navigates the storm ahead.
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