Shares of Deere (NYSE:DE) harvested substantial gains following strong quarterly numbers. The tech-savvy farming equipment maker continues to make bets to help drive the future of agriculture. These bets could keep growth strong, even as a recession weighs most heavily on discretionary firms. Given recent strength and the still-modest valuation, I remain bullish on Deere stock.
A Strong Crop of Earnings for John Deere
Nothing runs quite like a Deere, at least after its solid first-quarter earnings results, which saw EPS of $6.55, topping the consensus calling for $5.54. Revenues came in at $12.65 billion as demand held steady.
Though management acknowledged headwinds such as labor and energy costs, it’s clear that Deere is having no trouble plowing through the challenging environment. As such headwinds fade and supply gets in a spot to reach demand, Deere may be able to add to its impressive rally.
Undoubtedly, there’s a recession expected to touch down over the coming months. It’s up for debate about how “hard” the economy’s landing will be as the Federal Reserve continues cranking up interest rates. Some optimists are open to a “no landing,” while the bears think lingering inflation could leave the Fed no option but to keep rates elevated, even if it means causing a rougher landing than it’d like.
In any case, Deere’s resilience through the past few quarters is a testament to the resilience of agriculture. Even with macro headwinds, farmers are crucial in feeding us all. Though crop prices have retreated from their highs, they’re still quite elevated, and farmers are benefiting. As farms rake in higher income, they’ll have more income to invest in big-ticket machinery from Deere.
Looking ahead, robust crop prices could continue to extend the current agriculture cycle. Further, other dynamics could incentivize farms to consider the latest innovations that Deere has to offer.
Deere: The Apple of Farming?
Indeed, it’s hard to find the help needed to run a farm. Deere’s latest innovations could be coming to help, with impressive autonomous capabilities and other innovations that could help farmers save even more money. With every new innovation revealed, Deere seems to be making a case for why it’s the Apple (NASDAQ:AAPL) of the farming industry.
The “right to repair” trend surrounding Apple (allowing consumers to repair products themselves) also seems to have spread to Deere. Like Apple, Deere has a strong brand, industry-leading innovation, and convenient, albeit pricy, customer service that it wants to maintain control of.
For now, Deere is following in Apple’s footsteps by allowing its equipment owners to fix their own machines. However, as new technologies are rolled out, it’ll become even harder for farmers to fix their equipment without something going wrong.
Deere’s Agricultural Innovations Seem Incredibly Impressive
Artificial Intelligence (AI) has captured the attention of many investors this year, thanks to OpenAI chatbot ChatGPT. It’s not just software companies that will reap profits as next-generation AI is rolled out across various industries. Deere looks to be on the cusp of a “smart farm” revolution.
Looking ahead, I expect such innovation could make the latest and greatest farming equipment a value-adding purchase. Just like certain software-as-a-service (SaaS) offerings pay themselves off in cost savings for enterprise clients, I think Deere’s smart-farming equipment (and software) can do the same for farmers.
Indeed, Deere’s autonomous tractor may get the most attention. However, other innovations, such as customized fertilizer spraying and seed placement, can translate to unprecedented savings for farmers and the environment.
For instance, such smart spraying from its ExactShot technology could cut the fertilizer needed during planting by as much as 60%. It isn’t just cost savings that could benefit farmers; such tech could also improve crop yields. It’s a fascinating time for farmers, and Deere is leading the way as it embraces tech with open arms.
Beyond autonomous and smart-farming capabilities, Deere also has a foot in the door of 3D printing. In the future, more tractor components may make use of 3D printing to improve efficiencies and cut costs in the production process — yet another high-tech tool in Deere’s kit that could help it drive margins much higher over the coming decade.
Is DE Stock a Buy, According to Analysts?
Turning to Wall Street, DE stock comes in as a Moderate Buy. Out of 15 analyst ratings, there are nine Buys and six Holds. Theaverage Deere stock price target is $473.53, implying upside potential of 12.2%. Analyst price targets range from a low of $398.00 per share to a high of $537.00 per share.
The Bottom Line on Deere Stock
Deere’s fresh off a fantastic quarter. As it continues to benefit from strong demand while looking to cutting-edge technologies to pull ahead of the pack, I think Deere stock deserves a much higher multiple. At 15.6 times trailing earnings, Deere doesn’t seem priced with innovation-driven growth in mind.
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