Stock Analysis & Ideas

Deere Stock: An Intriguing Value, Even With a Looming Recession

Story Highlights

Deere stock is in a brutal bear market, as investors weigh the possibility of a recession in 2023. With innovative launches coming up, the company has intriguing catalysts that many may be heavily discounting.

Shares of farming-equipment maker Deere (DE) are now down more than 30% from their all-time highs to $304 and change per share. It’s been a brutal plunge as investors brace for a recession that could accompany a bit of discretionary demand destruction.

Despite coming off a somewhat decent second quarter of earnings (revenue was a bit light), Deere stock has fallen into the headlights of the vicious broader market sell-off. Though management is still shooting for a high operating margin target, it’s tough to gauge how bumpy the road ahead will be, especially since 2023 holds a rate-induced recession.

Though Deere may have a reputation as a less-exciting, Baby-Boomer-friendly stock, it’s hard to ignore the innovations going on behind the scenes. The company is innovating in a way that could out-pace its rivals in the farm equipment space. With fully-autonomous tractors coming soon, the farming world may see its biggest ever technological jump in decades.

Undoubtedly, autonomous farming sounds pretty far-fetched. However, I believe it’s closer to reality than autonomous driving, given a farm is a more controlled environment with fewer things that can go wrong. Indeed, Deere is on the cutting edge of autonomy, and its investor presentations aren’t just about building hype. Deere is serious about full autonomy, and its strategic push could help power its stock to even higher levels.

I am bullish on DE stock.

On TipRanks, DE scores a 5 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to perform in-line with the broader market.

Why Deere Can Weather the Next Recession

Though autonomy and electrification tailwinds are notable, investors may shy on Deere stock for the time being. The market doesn’t seem to care much for exciting stories anymore. If there’s a recession on the minds of investors, big-ticket discretionary firms are going to be tossed aside. Given Deere stock’s brutal performance during the 2008 stock market crash, many investors may view the firm as some sort of value trap.

Sure, Deere will get knocked down, just as most other firms will once the next recession arrives. The only difference is that Deere will have a front-row seat to the next economic boom, with intriguing new machinery that will be tough for farmers to pass up.

Further, not every recession is built the same. With upward pressure on crop prices, many farmers could be in a position to update to the latest and greatest Deere machinery. Indeed, an autonomous tractor is an investment that can pay for itself and then some. Should crop prices continue rallying, Deere may be a discretionary firm that could mostly be spared from the coming market-wide chaos.

Crop price moves tend to influence Deere stock. And with the risk of a global food shortage, one has to think that farmers will seek out any productivity enhancements where they can.

Further, it’s been difficult to attract and retain talent in the farming space. It’s this difficulty in finding enough farm hands that could lead to greater spending on autonomous products coming out of the Deere pipeline.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, DE stock comes in as a Moderate Buy. Out of 17 analyst ratings, there are 11 Buy recommendations and six Hold recommendations.

The average Deere price target is $403.50, implying an upside of 36.34%. Analyst price targets range from a low of $325 per share to a high of $472 per share.

The Bottom Line for Deere Stock

Crop prices could remain elevated as the Russian blockades in Ukraine threaten to cause a global hunger crisis. Higher crop prices mean farmers will do their best to increase yields.

With Deere’s autonomous equipment to launch in the near future, many farmers may spend extra cash on the latest Deere offering. Not only can such offerings help enhance productivity, but they can help farmers navigate an environment where it’s hard to find labor.

Deere’s innovative autonomous offerings may also draw in customers from its rivals. Undoubtedly, the Deere brand is respected within the farming community. Though rivals will try to meet Deere stride for stride, it may prove difficult to match its innovative capabilities.

At writing, shares of Deere trade at 15.9 times trailing earnings and 2.0 times sales. That’s incredibly cheap for a firm innovating at such a rampant pace. Recession or not, Deere stock seems like a great bet here, and many Wall Street analysts are inclined to agree.

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