Summary of U.S. Machinery & Electricals Outlook 2026 Industry Overview - The report focuses on the machinery and electrical equipment industry, highlighting a cyclical recovery expected in 2026 after a challenging 2025, where estimates fell by 5-10% due to a downturn in core markets such as truck, agricultural, and construction equipment [1][12]. Key Points Cyclical Recovery - 2026 is anticipated to be a recovery year driven by aligned monetary and fiscal policies, which are expected to restart positive estimate revisions, with potential upside in low single digits to mid single digits [1][12]. - The recovery is not yet priced into the market, with current pricing reflecting a PMI of around 50, indicating stagnation [2][13]. Construction Equipment - Construction equipment is viewed as a tightly coiled spring, with looser monetary policy and strong fiscal impulses expected to impact the non-residential sector positively in 2026 [3][14]. - The supply/demand balance for construction equipment is tightening, with utilization rates and rental rates increasing, while inventories of used and new equipment are decreasing [3][14]. Truck and Agricultural Equipment - North American heavy-duty truck production is projected to decline by 6% year-over-year in 2026, with production expected to hit 225,000 units, which is 40,000 units below replacement levels [4][15]. - Agricultural equipment demand is expected to reach a 40-year low, declining by 10-15% year-over-year, but improving farmer profits and tighter inventories signal a potential trough [4][15]. Electrical Equipment - Demand for electrical equipment is expected to remain strong in 2026, with growth driven by data center capacity build-out, although regulatory obstacles and political factors may create friction [5][16]. - Four key factors to monitor include regulatory impacts on growth, shifts in utility capital expenditures, political implications of electricity price inflation, and the increasing importance of behind-the-meter solutions for data centers [5][16]. Investment Implications Top Stock Picks for 2026 - **United Rentals (URI)**: Top pick with a price target of $1,128, representing a 42% potential upside, driven by a cyclical recovery and business transformation [6][17]. - **Trimble (TRMB)**: Price target of $99, with a 25% potential upside, benefiting from low tech penetration in construction and expected earnings growth [6][18]. - **Hubbell (HUBB)**: Price target of $530, with a 23% potential upside, expected to benefit from organic growth and a cyclical recovery [6][19]. - **PACCAR (PCAR)**: Price target of $125, with a 12% potential upside, positioned to benefit from cyclical recovery in the truck market [6][22]. - **Eaton (ETN)**: Price target of $395, with a 25% potential upside, navigating growth challenges but set for recovery [6][23]. Valuation Insights - The report emphasizes that many stocks in the machinery and electrical sector are undervalued, trading at a discount compared to historical averages, suggesting significant upside potential as the market recovers [12][46]. Additional Insights - The report notes that the effects of tax reform could unlock $800 billion in fiscal stimulus, positively impacting non-residential construction and truck sectors [12][46]. - The cyclical recovery is expected to lead to a double-digit growth in estimates, driven by monetary policy and fiscal stimulus [12][46]. This comprehensive outlook indicates a significant potential for recovery in the machinery and electrical sectors, with specific stocks poised to benefit from the anticipated economic conditions in 2026.

Core Insights - The One Big Beautiful Bill Act, signed into law on July 4, will significantly impact markets starting in January, particularly benefiting cyclical sectors outside of tech and AI [1][2] - Société Générale's chief US equity strategist, Manish Kabra, has identified 30 stocks that are expected to benefit from the tax and regulatory breaks provided by the bill, focusing on financials, industrials, and consumer cyclicals [2] Beneficiary Sectors - Key sectors poised for growth include defense, small-caps, consumer, and energy, as they are expected to receive a boost from the new tax and regulatory policies [2] - The average forward price-to-earnings ratio for the identified stocks is 17x, with an expected earnings-per-share growth of 15% in 2026 and 2027 [3] Defense Beneficiaries - General Dynamics Corp (GD): Positioned for defense modernization funding [6] - L3Harris Technologies Inc (LHX): Benefits from investment in advanced systems [6] - Northrop Grumman Corp (NOC): Well-placed for missile defense and space programs [6] - Huntington Ingalls Industries (HII): Supported by naval modernization initiatives [6] Capex Incentive Beneficiaries - United Rentals Inc (URI): Set to gain from increased construction activity [6] - Jacobs Solutions Inc (J): Benefits from infrastructure upgrades and industrial investment incentives [6] - Trimble Inc (TRMB): Aligned with manufacturing investment push [6] - Caterpillar Inc (CAT): Benefits from accelerated depreciation and domestic production incentives [6] - Cummins Inc (CMI): Supported by R&D expensing and industrial investment [6] - Deere & Co (DE): Gains from capex incentives and domestic manufacturing support [6] - Nucor Corp (NUE): Benefits from industrial base expansion and construction demand [6] - Freeport-McMoRan Inc (FCX): Critical supplier for electrification and infrastructure projects [6] - Duke Energy Corp (DUK): Positioned for grid modernization under capex policies [7]

Financial Performance - In fiscal year 2025, Production & Precision Agriculture (PPA) generated $17,311 million in net sales, accounting for 45% of equipment operations net sales[21] - Small Agriculture & Turf (SAT) segment generated $10,224 million in net sales, representing 26% of equipment operations net sales[21] - Construction & Forestry (CF) segment generated $11,382 million in net sales, making up 29% of equipment operations net sales[21] - The backlog orders for the CF segment increased to approximately $3.8 billion as of November 2, 2025, compared to $2.2 billion at October 27, 2024, indicating planned production levels are rising in line with retail demand[79] - As of November 2, 2025, the company indirectly owned 100% of the voting shares of Capital Corporation, with a consolidated tangible net worth of $5,929.8 million[85] Strategic Focus - The company is focused on three pillars: Production Systems, Technology Stack, and Lifecycle Solutions to enhance customer value and operational excellence[16][17][18] - The company introduced its Leap Ambitions in 2022, which are focused goals to guide the implementation of its Smart Industrial Operating Model[19] - The company is developing autonomous solutions and connectivity capabilities to meet sustainability goals and unlock new markets[32] - The company is investing significantly in research and development to improve product quality and performance, and to integrate sustainable solutions[66] Technology and Innovation - Investments in precision technology are expected to transform agricultural equipment into smarter, more efficient machines[23] - The company leverages advanced telematics systems to provide real-time alerts and information about equipment performance and maintenance[25][26] - The company’s precision technology solutions include SmartWeigh™, Smart Grade™, and John Deere Operations Center™, aimed at enhancing customer productivity[46] - The company is focusing on delivering hybrid-electric and battery electric equipment solutions to reduce tailpipe emissions while maintaining power and performance[46] Operations and Manufacturing - The company is expanding its operations in Brazil, having built a research and development center in Indaiatuba dedicated to tropical agriculture[39] - The company has a global manufacturing footprint, with most large agricultural equipment assembled in the U.S. for U.S. customers[62] - The company operates approximately 2,050 independent dealer locations in the U.S. and Canada, with around 450 selling construction and forestry equipment[70] - The company has implemented strategies to increase supply chain resiliency and mitigate risks related to supply disruptions[77] Employee and Safety Metrics - The company has approximately 73,100 employees, with 32,500 being full-time production employees as of November 2, 2025[99] - In fiscal year 2025, the company reported a total recordable incident rate of 1.45 and a lost time frequency rate of 0.61, indicating safety performance metrics per 100 full-time employees[111] - Approximately 77% of U.S. production and maintenance employees are represented by unions, with collective bargaining agreements expiring between 2025 and 2027[100] - The company is committed to providing comprehensive and competitive pay and benefits, including medical, dental, and vision plans for eligible full-time employees in the U.S.[108] Compliance and Sustainability - Compliance with environmental controls did not materially affect the company's capital expenditures, earnings, or competitive position in fiscal year 2025[90] - The company does not expect to incur material capital expenditures related to compliance with regulations during fiscal year 2026[98] - The company is subject to various local, state, and federal laws and regulations, which require significant investment in compliance efforts[96] - The company continues to monitor and review developing sustainability frameworks and global regulations, such as the EU's Corporate Sustainability Reporting Directive[94] Financial Services - The financial services segment provides financing for retail purchases, enhancing sales of products and generating financing income[81] - The company completed a transaction with Banco Bradesco S.A. in Q2 of fiscal year 2025, resulting in Bradesco becoming a 50% owner of its Brazilian subsidiary, Banco John Deere S.A.[86] Seasonal Demand - Seasonal demand for agricultural equipment is anticipated based on planting and harvesting seasons, affecting cash flows and production schedules[40][41] Training and Support - The company offers comprehensive training for dealers and customers to maximize the utilization of its technology solutions[47]

Group 1 - Deere & Company has introduced optimistic long-term financial forecasts, expecting net sales to grow at a 10% compound annual growth rate from this year through 2030, which is significantly higher than previous decades [1] - Historical revenue growth rates for Deere show a compounded growth of 7% from 2000 to 2009, 5% from 2010 to 2019, and only 4% from 2020 to 2025, indicating a substantial improvement in projected growth [1] - The company is recognized as a "high-quality company" that manufactures farming, turf, construction, and forestry equipment, along with supporting parts and tools [2] Group 2 - There is a perspective that while Deere has potential as an investment, certain AI stocks may offer greater upside potential and carry less downside risk [3]

Core Insights - Deere & Company is a global leader in agricultural, construction, and forestry machinery, providing precision agriculture technologies and financial services, operating in over 100 countries [1][2] Financial Performance - For the fourth quarter of 2025, Deere reported net sales and revenues of approximately $12.4 billion, an 11% increase year-over-year, exceeding analyst expectations of $9.8-9.9 billion [5] - Diluted EPS for the quarter was $3.93, slightly above the consensus of $3.85, but down around 14% from $4.55 a year earlier due to margin pressure [5][7] - Net income attributable to Deere for the quarter was roughly $1.07 billion [5] Segment Performance - Equipment operations net sales rose 14% to about $10.6 billion, with notable performance in different segments [6] - Production & Precision Agriculture sales increased 10% to $4.74 billion, with a 12.7% operating margin [6] - Small Agriculture & Turf sales rose 7% to $2.46 billion, but operating profit fell to $25 million [6] - Construction & Forestry segment saw a significant 27% sales growth to $3.38 billion, with a 10.3% operating margin [6] Market Performance - Deere's stock is currently trading about 13% below its 52-week high of $533.78, reflecting pressure from a weaker 2026 outlook [3] - Over the past five days, the stock is down about 1%, and it has seen an 8% decline over the past six months [3][4] - The stock offers a dividend yield of approximately 1.38%, totaling $1.62 for the past four quarters [3]

Core Insights - The article emphasizes the importance of understanding macro trends and their influence on asset prices and investor behavior, particularly in the context of equity analysis and research [1]. Group 1: Professional Background - The individual has over 10 years of experience in asset management, focusing on equity analysis, macroeconomics, and risk-managed portfolio construction [1]. - The professional background includes advising on and implementing multi-asset strategies, with a strong emphasis on equities and derivatives [1]. - The individual holds a BA in Financial Economics and an MA in Financial Markets, indicating a solid educational foundation in finance [1]. Group 2: Investment Philosophy - The goal of sharing insights on platforms like Seeking Alpha is to foster collaboration among investors and enhance confidence in long-term investing [1]. - The article promotes the idea that investing should be accessible, inspiring, and empowering, highlighting the value of community in investment decision-making [1].

Core Insights - The article emphasizes the importance of understanding macro trends and their influence on asset prices and investor behavior, particularly in the context of equity analysis and research [1]. Group 1: Professional Background - The author has over 10 years of experience in asset management, focusing on equity analysis, macroeconomics, and risk-managed portfolio construction [1]. - The professional background includes advising on and implementing multi-asset strategies, with a strong emphasis on equities and derivatives [1]. Group 2: Investment Philosophy - The article advocates for making investing accessible, inspiring, and empowering, highlighting the value of sharing insights and building confidence in long-term investing [1]. - The author encourages readers to conduct their own research before making investment decisions, reinforcing the idea that the analysis provided is for informational purposes only [1].

Core Insights - Republican lawmakers are urging President Trump for additional farm relief and support for agricultural equipment manufacturers due to the adverse effects of his tariff policies on farmers and the equipment industry [1][2][3] Group 1: Impact of Tariffs on Farmers - Farmers are experiencing financial strain due to Trump's tariff policies, which have negatively affected their reliance on exports, particularly to China [2] - The combination of low commodity prices and high input costs, such as fertilizer, has forced farmers to reduce spending, impacting their ability to purchase new equipment [2][3] - The demand for new equipment has decreased, leading to layoffs at major manufacturers like Deere [2] Group 2: Manufacturer Perspectives - Deere's agriculture division president noted that the U.S. market is under significant pressure due to trade flow disruptions and escalating internal costs [3] - The Association of Equipment Manufacturers expressed concern that high tariffs on essential parts could inadvertently harm farmers and increase costs for consumers [3] Group 3: Legislative Actions and Proposals - Senator Chuck Grassley has communicated with the White House and relevant departments, advocating for targeted relief from tariffs for equipment manufacturers [4] - Other Republican senators, including John Hoeven, have discussed the need for aid to farmers regarding equipment costs during meetings with Trump [5] - Trump has suggested reducing regulatory burdens on equipment manufacturers to lower costs, contingent on those companies reducing their prices [6] Group 4: Challenges Ahead - There is skepticism about the feasibility of increasing farmers' income to enable them to purchase new equipment, given the already tight margins in farming operations [7][8]

Group 1 - Morgan Stanley raised the target price for Deere & Company from $500 to $560, reaffirming an "Overweight" rating [1]

Core Insights - Deere & Company (DE) is highlighted as a company that could face significant volatility, with the potential for a single disappointing performance to negatively impact investor sentiment [1] Company Analysis - The company has previously gained favor among investors, indicating a period of positive sentiment [1] - The focus on sustained profitability is emphasized, with key metrics such as strong margins, stable and expanding free cash flow, and high returns on invested capital being critical for long-term investment success [1] Investment Strategy - The investment approach prioritizes undervalued growth stocks and high-quality dividend growers, suggesting a strategy that balances risk and potential returns [1] - The importance of managing investments wisely is underscored, with a goal of ensuring financial freedom while maintaining a connection to work that allows for personal expression [1]