NEW YORK (AP) -- Shares of equipment makers Deere & Co. and Caterpillar Inc. fell Thursday, and Morgan Stanley cautioned that each could face challenges next year.
Morgan Stanley initiated coverage of Deere with an "Underweight" or "Sell" rating, and predicted that the company's earnings per share will fall 16 percent next year, on weaker results in its agriculture sector.
Analysts surveyed by FactSet, on average, expect a nearly 9 percent decline, with estimates calling for Deere to earn $8.81 per share in the fiscal year ending this October, and $8.05 per share over the following 12 months. Morgan Stanley is looking for $8.82 per share for the current fiscal year, and $7.44 per share next year.
Deere's agriculture business will be hurt by falling farm income, Morgan Stanley said. The U.S. Department of Agriculture predicts an average 2 percent annual decline in farm cash receipts from 2012 through 2015, with a 5 percent drop in 2014 alone, partly due to lower prices for corn and soybeans, leaving famers with less cash to buy new equipment.
Morgan Stanley analyst Nicole DeBlase also said in a note to clients that the farm-equipment market is deteriorating, with rising inventories and falling prices for used combines and large tractors. A spokesman for Deere declined to comment on the report.
Deere shares fell $1.93, or 2.3 percent, to close at $82.55. Shares have changed hands between $73.62 and $95.60 in the past 52 weeks, and the stock is down about 4.5 percent since the start of 2013.
Morgan Stanley rated Caterpillar "Equal-weight," or "Hold," saying that earnings should grow next year after a trough in 2013. But if construction activity fails to pick up in early 2014, or if equipment demand from miners continues to fall, it would increase the challenges facing the company.
Analyst DeBlase said Caterpillar management was taking steps to fix inventory-management problems, but it will be a long process.
Analysts, on average, expect Caterpillar to earn $6.32 per share this year and $7.28 per share next year. Morgan Stanley's estimates came in at $6.23 for the current fiscal year and $7.10 for next year. A Caterpillar spokesman declined to comment on the analyst's note.
Caterpillar shares lost 59 cents to close at $82.95. Shares have traded between $79.49 and $99.70 in the past 52 weeks, and the stock is down about 7 percent since the start of the year.