Farming equipment maker Deere (NYSE:DE) may be a cyclical industrial stock, but it’s still doing some impressive things with AI tech. Even after the stock’s impressive rally this month, shares of Deere are down around 5% year-to-date, suggesting its AI prowess isn’t priced in yet. With a modest valuation, impressive autonomous capabilities, and ample room for the farming supercycle to extend, I’m inclined to stay bullish on Deere stock.
Deere may be a nearly 200-year-old company, but it’s stayed relevant through the ages for a reason. The company knows how to change with the times, even in the face of rising rivals. With the AI age (or the fourth industrial revolution) underway, thanks in part to the popularity of OpenAI’s chatbot ChatGPT, Deere is poised to make a big splash in the modern era.
Undoubtedly, Deere isn’t just another firm that’s only recently hopped aboard the AI train for the share appreciation benefits. Indeed, it seems like all any company needs to do is put the words “AI” in its name or use it non-stop in a conference call! Deere doesn’t need to do this. For years, the company has been working on the impressive AI magic underneath the hood of its next generation of tractors.
Though autonomous farming is still in the very nascent stages, it’s hard to imagine any other agricultural tech firm with as much to gain as Deere.
Autonomous Tractors, Strong Farming Economics Could Spark a Rally
Deere stock has been consolidating in a broad range (around $300-$450) for well over two years now, following a remarkable 2020-21 rally that saw shares almost quadruple from trough to peak. Undoubtedly, a lot of farmers have already used the windfall of high crop prices to purchase brand-new equipment, and though the industrial boom has seemed to run its course, there don’t seem to be signs of any pending downcycle.
Deere’s latest quarter pointed to a farming economy that’s still alive and well, perhaps well enough to make it through an economic recession without so much as another bear market plunge. The company didn’t just beat in its second quarter ($9.65 EPS vs. the $8.59 consensus estimate), but it had the confidence to hike its profit outlook for the full year.
Its full-year net income is expected in the $9.25-$9.50 billion range, up from the original estimate of $8.75-$9.25 billion. The “beat and raise” may have worked its way into the stock, but I still think there’s more room for AI innovations to move the needle higher.
Deere Stock: $500 Per Share May be in the Headlights!
If the farming scene stays robust (a bull-case scenario for Deere) while the company keeps moving forward with autonomous innovations, it could be tough to stop DE stock from plowing its way past $500. Of course, Deere’s AI and self-driving ambitions won’t lead to massive sales surges in a short timeframe. The company flexed its autonomous tractor in January 2022, but it could take a while longer before self-driving tractors rake in the big harvest for Deere.
Deere is shooting for full-farm autonomy by 2030. That’s a realistic timeline (possibly conservative, given the recent hype surrounding self-driving tech) but quite distant for many investors. Still, if investors are willing to bet on Tesla (NASDAQ:TSLA) at a nosebleed-level valuation (around 75 times trailing price-to-earnings) for its AI-driven self-driving ambitions, I find it strange to pass up on Deere stock at a bargain-basement 13.6 times trailing price-to-earnings multiple.
Five-star-rated analyst Stephen Volkmann of Jefferies currently has a $510 price target on Deere, implying around 27% upside potential from current levels. If the right cards fall into space (which looks realistic following Deere’s latest quarterly earnings beat), I’d look for other analysts to follow Volkmann’s lead with a few upgrades of their own.
Is Deere Stock a Buy, According to Analysts?
Turning to Wall Street, DE stock comes in as a Moderate Buy. Out of 19 analyst ratings, there are 12 Buys and seven Holds. The average Deere stock price target is $446.84, implying an upside potential of 11.2%. Analyst price targets range from a low of $367.00 per share to a high of $530.00 per share.
The Bottom Line on Deere Stock
Deere keeps plowing past earnings estimates, even as the current cycle gets a bit long in the tooth. As the cycle extends and we move closer to an autonomous farming future, it’s not hard to imagine Deere stock continuing to march higher from here as it does its part to help improve the underlying economics of farming forever.
