Stock Analysis & Ideas

Deere Stock’s (NYSE:DE) Autonomous Farming Ambitions are Hard to Ignore

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Thanks to the robust farming industry, Deere stock has been quite steady versus the rest of the market. As the firm looks to invest in forward-thinking growth initiatives, investors may wish to reward the stock with a higher multiple.

Shares of farming-equipment maker Deere (NYSE:DE) have done quite well in the face of a recession. As a premier firm in the farming equipment scene, Deere has been able to command respectable pricing power. It’s not just the John Deere logo (or seal of quality) that farmers are willing to pay up for. Deere has been quietly innovating its way to the top of the agro-tech scene. Ultimately, Deere’s pursuit of fully-autonomous farms could help it continue to power higher, even if the economy falls into a bit of a drought.

Undoubtedly, Deere sells some costly durable equipment that tends to experience cyclical swings in demand. Such expensive discretionary goods tend to be the first to fumble when economic times get tough. However, unlike other cyclical industries, farming tends to be less tied to the broader economy. Even as market-wide consumer sentiment sinks, demand for agricultural products and elevated crop prices could remain robust, helping farmers fund new equipment purchases.

Further, Deere’s latest and greatest offerings could accompany substantial cost savings for farmers. Indeed, farming is a tough business to be in. The startup costs are high, seasons can be rough, and it can be difficult to get a helping hand.

Over the years, Deere has been on a mission to help farmers improve productivity. To do so, the firm acquired various agro-tech firms while continuing to invest in forward-thinking projects. Indeed, Deere may very well lead the charge to full autonomy across American farms.

Deere’s an innovator at heart. Although many investors may dismiss it as a boring old-school company, innovation investor Cathie Wood actually bought shares of the firm for her robotics-focused fund a while back. Indeed, Deere is one of few ARK-approved stocks that’s actually up (around 14%) for the year.

With a modest 19.7 times trailing earnings multiple and numerous overlooked innovations, I remain bullish on Deere stock. As Deere’s roster of autonomous, specced-out equipment gets smarter with time, I do think shares may deserve a much higher multiple.

Smart Farms are the Future: Deere Sets Sights on Full Autonomy

The company already has a fully-functioning autonomous tractor in the line-up. Though the global fleet is limited (less than 50 at writing), the company expects uptake in autonomous farming equipment to surge over the next several years. At this juncture, the management team envisions “a fully autonomous farming system for row crops in place by 2030.”

Indeed, autonomous farming seems quite far-fetched today, especially given all the frustratingly-slow progress from autonomous vehicles. Still, Deere has the talent to bring the sci-fi dream to life. Arguably, a fully or mostly autonomous farm may be closer to reality than a metaverse that Mark Zuckerberg envisions consumers spending billions in!

Deere Stock Looks Ready to Ride Out a 2023 Recession

Deere has been hit with the same macro headwinds as other firms. The strong U.S. dollar, elevated commodity prices, and supply-side constraints have all worked their course. Management has been pretty solid on their cost controls. Remarkably, Deere has been able to trim away at costs without hurting its long-term growth profile.

Still focused on autonomous farming, Deere has also been quite calculated on the M&A front. It’s Deere’s ability to clamp down on expenses while moving forward on tech-driven efforts that should help it weather an economic hailstorm better than the peer group.

Further, the outlook for farming still looks bright, with various crop prices much higher than they were at the start of the year. While the price of certain crops has pulled back from highs, they’re still high enough to act as a boon for farmer incomes. This, in turn, should translate to greater uptake of Deere products.

Is DE Stock a Buy or Sell, According to Analysts?

Turning to Wall Street, DE stock has a Moderate Buy rating based on 11 Buys and five Holds assigned in the past three months. The average Deere stock price target is $411.47, implying an upside of 3.68%. Analyst price targets range from a low of $342.00 per share to a high of $450.00 per share.

Conclusion: Expect Deere to Continue Bucking the Trend

Deere stock has been such a stable pillar for the stock market this year. Going into 2023, I expect Deere to continue bucking the trend. The company’s innovative expenditures could translate into a multi-year boom in autonomous farming equipment well after the boon of high crop prices fades.

Indeed, Deere stands out as a secular grower in my books. The 1.09 beta on shares suggests that investors expect about the same (or a bit more) volatility than the S&P 500. Personally, I think Deere could be a lot less choppy than the averages as farming continues to flex its muscles.


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