Stock Analysis & Ideas

Deere (NYSE:DE): Fires on All Cylinders to Bolster Smart Equipment Portfolio

Story Highlights

The equipment maker, Deere & Company, is investing generously in developing self-driving tractors and smart-crop sprayers. The company aims at getting substantial top-line support from software subscriptions and fees over the long haul.

Illinois-based Deere & Company (NYSE:DE) is making huge investments to increase the application of software and automate farm equipment. The company is expected to roll out two revolutionary pieces of equipment: self-driving tractors, and smart-crop sprayers this year.

Deere appears upbeat about the contribution of automation initiatives to its top-line growth. According to a WSJ report, the company believes that 10% of its annual revenues will be attributable to the fees charged for using Deere’s software by the end of the decade.

Further, Deere aims to link its cloud-based John Deere Operations Center to 1.5 million machines that are already in service and a half billion acres in use by 2026. This move should aid in building a crop database for better application.  

Notably, the company bought Bear Flag Robotics last year for $250 million. This California-based startup was acquired with the objective of providing Deere with software for automating older tractors.

Market experts are of the opinion that software subscriptions may help this equipment maker expand profit margins. This idea has been further substantiated by a 2021 report from Bernstein analysts. According to this report, the average gross margin from equipment sales is expected to come in at just 25%, in comparison to roughly 85% projected from the farming software.

Is Deere Stock a Good Buy?

The equipment maker could be a good investment option for long-term investors. It is worth mentioning here that financial bloggers are 90% Bullish on DE stock versus the sector average of 67%. The news sentiment is also positive for Deere stock. Hedge funds have also raised their holdings of DE stock, as they purchased 77,600 shares of DE stock in the last quarter.

Meanwhile, analysts are both cautious and optimistic about the growth prospects of Deere, which commands a Moderate Buy consensus rating based on 12 Buys and five Holds. 

Final Thoughts

Deere expects to introduce autonomous models for its complete equipment portfolio by 2030. Moreover, with the third-quarter Fiscal 2022 earnings results, Deere announced that it expects strength in order books and positive customer fundamentals to support demand for its products in 2023. Further, DE’s average price forecast of $407.50 suggests a 9.47% upside potential from the current level.

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