Investors think of Deere (NYSE:DE) as a classic company from America’s heartland, but it’s also an under-the-radar robotics and artificial intelligence (AI) stock. This might sound surprising, but you don’t have to take my word for it — it’s a top 10 holding in Cathie Wood’s ARK Autonomous Technology & Robotics ETF (BATS:ARKQ), just above higher-profile stocks that are synonymous with AI like Nvidia (NASDAQ:NVDA) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).
Best of all, Deere is not just an under-the-radar high-tech robotics and AI stock; it’s one that’s trading at a very palatable valuation as the market doesn’t yet seem to appreciate this aspect of the company. Here’s why Deere stock looks like a compelling long-term investment.
Robots on the Farm
Believe it or not, Deere is a 186-year-old company, but this doesn’t mean that you can’t teach an old dog new tricks. Today, Deere is on the cutting edge of technologies like robotics and autonomous vehicles.
Deere is the worldwide leader in agricultural machinery — it’s well known for its iconic green tractors, as well as other agricultural equipment. You may have even seen Deere’s ride-on lawnmowers. It also serves the construction and forestry end markets with products like bulldozers, excavators, and timber-harvesting equipment. Many industries are becoming more automated with advances in robotics and artificial intelligence, and Deere’s end markets are no different.
It’s not merely all bells and whistles or an effort by Deere to shoehorn some hot buzzwords into its marketing material. The global population is growing, recently surpassing 8 billion, meaning that the world’s farmers will need to produce more food than ever before to sustain this growing population. Deere’s increasingly high-tech robotic and autonomous equipment helps farmers operate more efficiently by reducing operational costs, cutting down on waste, reducing the need for labor, and boosting crop yields.
Examples include Deere’s See & Spray technology, which utilizes high-resolution cameras and image recognition to recognize the difference between weeds and cultivated plants so that it can spray herbicide on the weeds only, thus reducing the use of chemicals and reducing costs for farmers.
Meanwhile, the company’s new ExactShot technology cuts down on waste (and cost) by reducing the use of fertilizer, spraying individual seeds with fertilizer as opposed to just spraying an entire row of them.
In 2022, Deere unveiled fully autonomous self-driving tractors at CNET’s CES 2022. Deere’s autonomous product portfolio also includes autonomous sprayers and autonomous drone sprayers. All of these products help farmers to work more efficiently and to do more than less.
Deere has also been busy acquiring a number of AI and robotic startups in recent years, ranging from its $305 million acquisition of Silicon Valley firm Blue River Technology in 2017 to smaller deals like its 2021 acquisition of Silicon Valley AgTech startup Bear Flag Robotics and its March 2023 acquisition of SparkAI.
Bargain-Bin Valuation
Despite these impressive advances, Deere stock trades fairly cheaply. Shares trade at just 14.4 times earnings, a steep discount to the broader market, where the average multiple for the S&P 500 (SPX) is about 24. Shares are even cheaper on a forward basis, trading at 12.6 times forward earnings.
Stocks like Deere and Caterpillar (NYSE:CAT) are trading at lower valuations right now because there is a lot of uncertainty in the global economy, particularly in capital-intensive sectors like agriculture and construction, which are the key end markets for Deere, but this much of a discount seems way too cheap.
Furthermore, Deere had a median price-to-earnings ratio of 20.5 times earnings from Fiscal 2018 to 2022, so in addition to being attractive compared to the S&P 500, the stock is also cheap compared to its own historical standards.
Is DE Stock a Buy, According to Analysts?
Analysts also see the value in shares of Deere. The stock enjoys a Moderate Buy consensus rating from analysts, and the average DE stock price target of $470.15 represents upside potential of 25.1%. Of the 14 analysts covering Deere, nine have a Buy rating on it, and five have a Hold rating.
Additionally, Deere features a favorable 8 out of 10 Smart Score. The Smart Score is TipRanks’ proprietary quantitative stock scoring system that evaluates stocks on eight different key market factors. The result is data-driven and does not require any human intervention. A Smart Score of 8 or better is equivalent to an Outperform rating.
Looking Ahead
At a time when the market is hungry for all things AI and robotics, Deere is quietly a leader in these fields and is utilizing these technologies to help the world’s farmers become more productive and efficient. While many tech companies and stocks associated with robotics or AI trade at sky-high valuations or aren’t even profitable, Deere is profitable and trades at a very modest valuation.
I believe that as Deere’s recognition as a leader in AI, robotics, and automation technology grows, the market will appreciate the stock more and give it a higher multiple.
Additionally, while a yield of 1.3% doesn’t quite make Deere a stock that dividend investors will get excited about, it is comforting to know that the company has paid an annual dividend for 33 consecutive years.
Based on these factors, plus Deere’s favorable analyst ratings and Smart Score, I believe the stock looks promising for the long term.
