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Never Mind the Strikes, Deere Is Worth Considering
Stock Analysis & Ideas

Never Mind the Strikes, Deere Is Worth Considering

Industrial equipment and component manufacturer Deere (DE) has mainly been hamstrung for the last month. On October 14, production workers stepped off the line and went on strike. Two attempts to produce a new contract for striking workers failed.

Now, a third attempt has taken the stage and is bringing fresh hope that Deere will get back to production directly. Though the labor troubles are disconcerting, I’m bullish on Deere overall. (See Analysts’ Top Stocks on TipRanks)

Looking at Deere’s stock charts for the year, one almost wouldn’t know the company has been having labor troubles. The company spent most of the first quarter of 2021 on an upward cant. That surge leveled off when many farmers in the U.S. were looking to begin the year’s planting. Another small surge hit in May.

That was followed by a slight dip for June that was quickly wiped out with a new leg up. Price spikes hit in both August and September. Then, the share price dipped down just a bit when Deere’s labor troubles first hit. A recovery then kicked in, and now, we’re around the prices seen in late September. (See Deere stock charts on TipRanks)

Meanwhile, the company is now on its third round of contract negotiations. There’s no word yet on just what’s contained in the agreement. Also unclear is when the workers will vote on the new contract. With workers off the job since October 14, however, any movement on this front is likely welcome.

However, reports suggest that the two sides have reached at least a tentative agreement. Additionally, the latest contract represents “modest modifications” to the previous contract, and it’s also Deere’s “last, best, and final offer.” Though it’s easy to wonder if Deere will come up with another “final” offer should this offer prove rejected by workers. The alternative, after all, would be to shut down altogether.

Powering Agriculture Gives Deere a Secure Position

The company’s labor troubles are a severe issue. It’s impacting the company’s ability to make and sell products. However, here’s the point that catches my attention most when talking about Deere; there is a bidding war going on right now over used Deere products.

With the production of new Deere hobbled, the secondary market for used tractors is exploding. Commodity prices have been spiraling upward for the last several months, even going back to last year, as various pandemic-related issues have hit the field. Production demand is only increasing. That’s putting upward pressure on everything used to produce commodities as well, and that means people want Deere hardware.

According to the Machinery Pete Quarterly Used Values Index—a measure of the value of used tractors and the like—the used market is seeing record high prices. These records are almost a decade old. That was during a major commodities boom.

Naturally, that’s having a range of knock-on effects in the agriculture market. The most significant effect for Deere watchers is that this proves unequivocally that Deere is a big brand. Thanks to the production impact, getting new Deere tractors right now is difficult.

Therefore, rather than proceeding to a competitor who isn’t having labor troubles, people are slogging through the used market to get what they want instead. That’s a very good sign of belief in the brand name. It’s also a great positive for investors.

Wall Street’s Take

Turning to Wall Street, Deere has a Moderate Buy consensus rating, based on four Buys and three Holds assigned in the past three months. The average Deere price target of $405.57 implies 14.9% upside potential.

Analyst price targets range from a low of $354 per share to a high of $440 per share.

Concluding Views

Deere has a very strong brand name, and the fact that the used market for Deere hardware is so hot right now makes that absolutely clear. Rather than buy new from some other brand name, customers are focusing on getting their name of choice in used hardware instead.

With that kind of brand loyalty in play, it’s easy to see why I’m bullish on the stock. This strike too shall pass, as it generally does. When it does, new Deere hardware will be back in play. That, coupled with an explosive commodities environment, should make Deere very attractive.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.

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