HSBC prefers Deere, says 3M litigation processes a concern

HSBC analysts initiated coverage of Deere & Company (NYSE:) with a Buy rating and 3M Company (NYSE:) with a Hold rating in a research note on Friday.

In a wide-ranging note, the analysts labeled 3M a “quality company with a strong brand and high, stable margins and returns.”

However, they noted that the company’s shares have lost 56% of their value since their January 2018 peak and have “de-rated to 11x 2024e PE, c2 standard deviations below their historical 10-year average multiple.”

“Weaker operating results is partly to blame, and the company is in the process of an aggressive restructuring program to fix this, but the biggest concern is the uncertain and potentially large liabilities related to two ongoing litigation processes – PFAS ‘forever chemicals,’ and Combat Arms earplugs,” the analysts said.

Deere, given a $486 price target, is one of HSBC’s preferred names, with HSBC analysts noting that “few companies can boast the market dominance that Deere has.”

Deere has “a c60% market share in the North American (NA) agricultural equipment market, c60% share of the farm management software market, and premium prices compared to competitors,” they wrote.

“This provides Deere strong pricing power and allows it to generate >30% through-the-cycle ROEs.”