John Deere Stock: Is It a Good Buy?
With the Biden administration focused on American infrastructure and job growth, and market activity in flux in the face of ongoing inflation, many investors are looking for new places to stash their cash.
One investment that has been looking like an attractive bet lately is Deere & Co., the manufacturing company known for its agricultural equipment, such as tractors. The company’s stock, DE, even made the news surrounding the divorce of Bill and Melinda Gates.
Cascade Investment, the investment company established by Bill Gates, transferred approximately 2.25 million shares to Melinda Gates, totaling around $851 million in worth, last May. The transfer caught attention since it comprised a large chunk of the $3 billion or so that Melinda Gates is believed to have received to date.
Here’s a look at Deere as it reports its first-quarter 2022 earnings to give you the information you need to know before investing in the company.
A Stable Foundation in Place
In the commercial farming sector, Deere benefits from the longtime strength of its brand, as well as a current wave of reorders that were anticipated but, until recently, weren’t guaranteed.
Despite raising prices to offset increasing shipping and supply-chain costs, Deere appears to be experiencing strong demand for agriculture equipment, thanks in part to high grain prices and government support for farmers, Reuters reported.
A Company Investing In Itself
Deere is gaining attention for multiple pivots forward — decisions that could expand the company’s consumer base and increase prices and margins. Many industry analysts like Deere’s commitment to modernizing agriculture — and the company has been working on several developments.
Smart Farming Solutions
Deere & Co. has been investing in smart farming solutions, such as technology that offers farmers real-time data points to use to make decisions about when to prepare soil, plant and nurture seeds and harvest plants. Deere also purchased Harvest Profit, a software with a focus on farm profitability.
Drought Management Technology
The company has invested in precision agriculture — giving farmers the ability to manage drought risk using information from satellites. This not only helps protect farms against potential losses, but also carries the possibility of using drought-prone crops of land, such as grasslands and pasture.
Using these more precarious types of land for farming with the help of satellite guidance could increase yields, profits and equipment needs. That’s potentially good news for Deere and its investors.
In 2004, Deere & Co. entered into a partnership with NASA’s Jet Propulsion Laboratory with the goal of improving its self-driving tractors. Deere used NASA’s technology to advance the self-guidance ability of its tractors, but it continued to work on its own technology.
Although it now relies on its own system, Deere placed a strategic bet by partnering with NASA until it could reach full proficiency with self-driving tractors on its own. According to its earnings presentation for the first quarter of 2022, Deere plans to deliver a fully autonomous battery-powered agricultural tractor by 2026.
New Deal With Unions
As GOBankingRates reported last month, 10,000 Deere employees — members of the United Auto Workers Union — went on strike in October “for the ability to earn a decent living, retire with dignity and establish fair work rules.” The union approved a six-year contract on Nov. 17, ending the strike.
New Lines of Revenue
As Deere adds smart farming technology to its equipment and overall product mix, both sales and profit margins are on the rise. Software sales are becoming a regular component of equipment sales and could become a stand-alone order.
An Expanding Customer Base
Deere’s opportunity in international markets is perhaps stronger than at any point in its history. As U.S. farms test the ways in which predictive technology can reduce farm labor and minimize losses, agricultural professionals from all over the world are likely to seek the same opportunity.
Deere’s Earnings Results
Deere & Co. stock has a one-year high of $400.34 and a one-year low of $320.50.
CEO John C. May said in a statement accompanying the earnings release that “Deere’s performance in the first quarter was impressive given production issues surrounding the delayed ratification of our UAW contract in late November as well as persistent challenges posed by the supply chain and pandemic.” May acknowledged that these factors resulted in higher costs last quarter. Despite those challenges, Deere beat analysts’ estimates for Q1 2022, prompting the company to increase its annual profit forecast, Reuters reported.
Here are some key metrics from the earnings report:
- Net sales and revenues: $9.57 billion, a 5% increase from the same quarter of 2021
- Net income: $903 million, down 26% from the same quarter of 2021
- Earnings per share: $2.92, down from $3.87 for the first quarter of 2021
In its revised guidance for 2022, Deere said it anticipates net income in the range of $6.7 billion to $7.1 billion, a slight upgrade based on the company’s prediction that demand for farm and construction equipment will continue to benefit from strong economic fundamentals.
Is Deere Stock a Buy, Sell or Hold?
The consensus among 22 analysts polled by Yahoo Finance is that Deere & Co. stock is a buy. The analysts’ average price target is $415.57, upgraded from $398.32 last quarter.
Investors Should Be Ready for Uncertainty as the Pandemic Winds Down
Although multiple factors will influence Deere’s performance in 2022, the company did enjoy the pandemic-era benefit of increased interest in compact equipment as Americans made landscaping more of a priority during lockdown.
Despite first-quarter earnings delivering more than expected, shares dropped because EPS failed to meet 2021 figures — despite the stock price having reached an all-time high just a week before the earnings were released, Entrepreneur reported. It’s unrealistic to expect pandemic-spurred growth to continue in the transition to a post-pandemic economy, especially if farm profits decline, as predicted by the U.S. Department of Agriculture and reported by Reuters, but it could take some time before sentiment catches up with the company’s strong fundamentals.
Good To Know
At one point during the coronavirus pandemic, Deere stock had fallen more than 40%. However, the company’s solid quarter-to-quarter performance, paired with anticipation around President Biden’s infrastructure plan, which he signed into law in November 2021, appear to have offered Deere some shelter.
The company appears positioned for growth due to the infiltration of technology into its product lines and the likely appeal of technology to farmers in other parts of the world. However, investors will need to watch and see if Deere’s growth tactics are enough in the short term to meet those trajectories head-on at this moment.
Deere isn’t likely to go anywhere. The question is simply this: How soon can it get to where it’s going, and how much of the market’s confidence can it keep in the meantime?
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Feb. 21, 2022, and subject to change.
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- Deere & Co. 2022. "Deere Reports First Quarter Net Income of $903 Million."
- Deere & Co. 2022. "1Q 2022 Earnings Call."
- Reuters. 2022. "Deere aims for bigger profit as price hikes power earnings beat."