Deere & Company (DE Quick QuoteDE - Free Report) will acquire Sunnyvale, CA-based, Blue River Technology, a pioneer in bringing machine learning to agricultural spraying equipment, for $305 million. Per Blue River Technology, its precision farming technology can save farmers up to 90% of chemical costs used compared with more traditional approaches. This technology will provide a competitive edge to Deere which is considered a leader in precision agriculture.
 

Blue River’s technology has aided precision agriculture by shifting farm management decisions from the field level to the plant level. Computer vision, robotics, and artificial intelligence are being used to help smart machines detect, identify, and make management decisions about every single plant in the field. For instance, Blue River's award winning “see and spray“ robots affix to tractors and can precisely identify and spray chemicals only to the plants in need. 
 

Over-relying on broadcast-spray chemicals as per traditional methods has led to herbicide tolerance in weeds which is a growing concern. Fighting these weeds impacts the crops and consequently the profitability. Blue River’s technology helps cut down the chemical usage, the costly inputs used in farming, thereby enabling farmers to spend more on farming equipment. This in turn will benefit Deere.
 

The startup, which was founded in 2011 by two Stanford University graduates, will add to Deere a 60-person team in the heart of Silicon Valley. Deere will build upon the technology and intellectual properties developed by Blue River. The company will eventually commercialize and sell it to customers through global dealer channels. Blue River also has plans to deploy its computer-vision software in harvesting and seed planting equipment so it can adapt to variations in the size of soil clods or corn plants across a field. The transaction is anticipated to close this month.
 

The acquisition is in line with Deere's acquisition of NavCom Technology in 1999. NavCom systems and products use GPS satellites, communications satellites and wireless communications media for the acquisition, processing and delivery of precise positioning data. With the buyout, Deere attained a leadership position in the use of GPS technology for agriculture and accelerated machine connectivity as well as optimization.
 

Deere's sales in the past few years had been dented by lower farm income that impacted farmers’ ability to spend on equipment. To combat the weak environment, the company had resorted to cutting back on production and layoffs. It also benefited from the adept execution of operating plans and disciplined cost management as well as the impact of a broad product portfolio. However, the scenario has improved this year. Deere expects net sales to increase about 11% year over year and projects net income to be roughly $2.075 billion in fiscal 2017. Notably, the stock has outperformed the industry in the past year. While the shares of Deere rallied 38.4%, the industry gained 35.3%.

 

For 2017, the USDA forecasts increase in global grain consumption for the 22nd consecutive year. The World Agriculture Supply Demand (WASD) report also projects ample supplies of corn and soybeans from large acreages. Notably, a turnaround in farm income is forecast for calendar 2017, the first increase since the peak in 2013. Meanwhile, global food and agricultural trade is still growing despite sluggish GDP growth, but the prospects are better for 2018 and 2019.

 

The Blue River deal highlights Deere’s growing efforts to add technology to agriculture, which is the need of the hour. Deere remains optimistic about the long term, based on steady investments in new products and geographies. It expects to be profitable driven by increased global demand for food, shelter and infrastructure. Further, favorable trends derived from growing, affluent and increasing population along with rising living standards will provide ample opportunity for long-term growth.

 

Deere carries a Zacks Rank #3 (Hold).

 

Some better-ranked stocks in the industrial product space include Caterpillar Inc. (CAT Quick QuoteCAT - Free Report) , AGCO Corporation (AGCO Quick QuoteAGCO - Free Report) and Komatsu Ltd. (KMTUY Quick QuoteKMTUY - Free Report) . All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Caterpillar has expected long-term earnings growth rate of 9.5%.

 

AGCO has expected long-term earnings growth rate of 13.5%.

 

Komatsu has expected long-term earnings growth rate of 12.7%.

 

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