Deere stock is a buy, Baird says.
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Deere stock had a banner 2021. Baird analyst Mig Dobre sees more gains for investors in 2022. Self-driving tractors are a key to his investment thesis.
Deere (ticker: DE) stock rose 27% in 2021 and shares have gained about 125% since the end of 2018. What’s more, the stock returned about 31% a year on average for the past five years. The five-year average annual return of the S&P 500 is a little below 18%. Deere stock has been a great pick for any portfolio.
Dobre sees more gains ahead. He raised his price target Friday to $475 from $425 a share, implying gains of about 25% from recent trading levels. Dobre kept his Buy rating on the stock.
Agricultural fundamentals are improving, which is always a key factor for Deere. “The USDA projects total 2021 U.S. crop receipts will be up 19.7% from the 2020 levels while livestock receipts are expected to grow 16.0%,” wrote Dobre in his Friday report. More cash for farmers translates into more sales for Deere.
But his call isn’t based on a cyclical recovery in farm income. He calls Deere a technology leader in the agricultural space. Deere recently launched a fully self-driving tractor at CES in Las Vegas. That technology impressed Dobre.
“The tractor revolutionizes how critical jobs (tilling, planting, harvesting) will be done, rendering prior modes of farming obsolete and setting up a multi-year fleet upgrade cycle,” added Dobre. “Deere is uniquely positioned given the robustness of its solution, while evolving its business model towards a subscription (autonomy as a service) model.” He believes Deere can sell self-driving features on subscription, just like Tesla (TSLA) is trying to do with its driver-assistance features it calls Full Self Driving, or FSD.
Making a self-driving tractor appears to be a little easier than making a fully self driving car. The tractor will only drive itself in a pre-defined area, such as a farmer’s field. It won’t wander down a highway. Speeds are slower, and when obstacles are detected, the tractor communicates with a Deere operations center and the farmer to help deal with obstacle avoidance.
Deere launched the tractor at CES, and it will eventually roll out its self-driving tech to other farm equipment such as combines— giving Dobre confidence that Deere’s future remains bright.
Dobre is a Deere bull. Overall, about 58% of analysts covering Deere stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $400 a share, up about 7% from recent levels.
Baird’s $475 price target is one of the highest price targets on the Street, according to Bloomberg. The highest target is $485 a share from Morgan Stanley analyst Courtney Yakavonis.
Deere stock is up 0.7% in Friday morning trading. The S&P 500 and Dow Jones Industrial Average are both nearly flat.
Write to Al Root at [email protected]
