Deere and Co (DE)

[DewDiligence]

Barron’s Roundtable excerpt on DE:

https://www.barrons.com/articles/roundtable-2022-stock-market-investing-opportunities-51642216617

The first leg of the story was based on the agricultural-equipment upgrade cycle. The fleet was old, and as farmers upgraded, profitability would be on the rise. Now we are rolling through what we think is a decade-long story centered on innovations in precision agriculture.

…Deere’s stock can return an average of 15% over the next three years, which implies a $550 stock price in 2024, inclusive of a 1% dividend yield. It trades for 18 times estimated 2025 earnings.

…The take rate on precision ag is getting into an S-rate adoption curve as combines are turned into data centers, connected to spectrum, and connected to Deere’s operations centers. As a result of data optimization, farmers are using less pesticides and fertilizers, and producing crops with less water. Deere is a great ESG story.

The precision-ag business within Deere is hard to unpack because the company doesn’t fully disclose the numbers. We think it was about a $2 billion business last year, on its way to $3 billion in 2023. Long term, the [total addressable market] could be upward of $50 billion, if you think about the crop-yield improvement.