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Deere & Company: Safe Bet for Long-Term Investors?
Stock Analysis & Ideas

Deere & Company: Safe Bet for Long-Term Investors?

Deere & Company (NYSE: DE) specializes in manufacturing equipment used extensively in agriculture, construction, forestry, lawn & garden, and other industries. The Moline, IL-based company is well-known for its popular equipment brand, John Deere.

Also, the $126.7 billion company has exposure in making drivetrains and engines, providing solutions for military and governmental organizations, and giving leasing and financing services.

Like all other industrial companies, Deere too is facing certain near-term hurdles (including supply-chain restrictions, lingering impacts of the pandemic, and cost inflation) but seems to be well-positioned for growth in the years ahead.

Let us briefly discuss what this agricultural-equipment maker has to offer investors.

Attractive Entry Point

Deere’s share price performance has been solid over the years, with the stock surging 279% over the past five years. Impressively, despite a challenging broader-market environment, the stock has managed to increase 10% over the past 12 months.

The price dip of about 2.7% in the past five days can be used by long-term investors to buy the stock at attractive prices.

Deere’s average price target of $437.40 mirrors upside potential of 5.93% from current levels. Its price target varies within the $414-$471 range.

Zeal for Innovation

The company is committed to offering technologically advanced (intelligent and connected) machinery to its customers. Its Smart Industrial strategy aims to revolutionize construction and agriculture production systems.

In March, it unveiled a technologically advanced machine, the 904 P-tier Wheel Loader. The wheel loader comes with a better detection system for rear objects, and material handling buckets (7.5- and 7.1-m3).

Additionally, Deere introduced See & Spray Ultimate, which will help in targeted spraying of herbicide (non-residual) on weeds. Also, the company introduced a step-less transmission (Electric Variable Transmission) for 8 Series Tractors and a JD14X engine for 9 Series Tractors.

It also came up with enhanced mid-sized excavators, 350 P-tier and 380 P-tier, and John Deere Protect Parts & Fluids Plan for its existing John Deere Protect program.

In February, it launched Austin, TX-based Innovation Hub. This new facility will help the company sharpen its technological abilities.

Building Opportunities

Deere has been working diligently to enhance its growth opportunities through joint ventures, acquisitions, and other means.

In March, Deere and SureFire Ag Systems, along with its unit SureFire Electronics, entered into a joint venture for mutual benefits. Also, Deere will soon be offering customers better access to its self-repair solutions. In May this year, the purchase of Deere’s Customer Service ADVISOR will be possible through JohnDeereStore.com.

Deere’s Senior VP, Aftermarket & Customer Support, Luke Gakstatter, said, “John Deere is continuously innovating, developing, and bringing to market new technologies and solutions that enable our customers to be more productive, efficient, and sustainable.”

The company expanded its manufacturing capabilities of forestry machines and excavators for the construction industry through the acquisition of factories owned by the Deere-Hitachi joint venture. This buyout was concluded in February.

The same month, Deere gained a majority holding in Kreisel Electric Inc., a provider of battery technology (immersion-cooled).

Impressive Financial Projections

For the Fiscal Year 2022 (ending October 2022), Deere anticipates net income to be within the $6.7-$7.1 billion range, up from the previous projection of $6.5-$7 billion.

The company’s Chairman and CEO, John C. May, said, “Looking ahead, we expect demand for farm and construction equipment to continue benefiting from strong fundamentals.”

On a segmental basis, Deere anticipates net sales to increase within the 25%-30% range for Production and Precision Agriculture, roughly 15% for Small Agriculture and Turf, and within 10%-15% for Construction and Forestry.

Wall Street’s Take

Two days ago, Tami Zakaria, an analyst at JP Morgan, upgraded Deere to a Neutral rating from the previous Sell rating. Zakaria also increased the price target to $440 (6.83% upside potential) from $355.

She finds Deere’s current valuation evenly baked for its rewards and risks. Also, the positive impact of abating supply-chain woes on the company’s backlog and inventories is encouraging.

A week ago, Robert W. Baird analyst, Mircea Dobre, reiterated a Buy rating on Deere.

Overall, Deere presently has a Moderate Buy consensus rating based on eight Buys and four Holds.

Risk Analysis

According to the TipRanks Risk Factors tool, Deere stock is at risk mainly from two factors: Legal & Regulator and Finance & Corporate. While the Legal & Regulator risk category contributes eight risks to the total 29 risks identified for Deere, the Finance & Corporate category adds six risks.

Conclusion

The prevalent hurdles might keep near-term investors at bay for the time being. However, Deere’s strong fundamentals, product offerings, and strategic efforts might attract investors willing to invest in the stock for the long term.

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