We See No Letup in Ag Demand in the Near Term, Which Will Benefit Deere

Equity Analyst

Dawit Woldemariam

Revenue segments as reported by the company.

Net sales

Finance and interest income

Other income

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Research and development

Selling, administrative and general

Interest expense

Other operating expenses

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership. 

The company’s strategy focuses on delivering a comprehensive solution for farmers. Deere’s innovative products target each phase of the production process, which includes field preparation, planting and seeding, applying chemicals, and harvesting. The company also embeds technology in its products, from guidance systems to seed placement and customized spraying applications. Over the past decade, the company has continually released new products and upgraded existing product models to drive greater machine efficiency. Customers also rely on the services that Deere and its dealers provide, for example, machine maintenance and access to its proprietary aftermarket parts. Furthermore, its digital applications help customers interact with dealers, manage their fleet, and track machine performance to determine when maintenance is needed. 

Deere has exposure to end markets with attractive tailwinds. In agriculture, we think demand for corn and soybeans will be strong in the near term, largely due to robust demand from China and tight global supplies. On the construction side, we believe the company will benefit from the $1.2 trillion infrastructure deal in the U.S. The country’s roads are in poor condition, which has led to pent-up road construction demand. Looking further out, we believe precision ag will be an incremental value driver for Deere. The company recently closed the precision ag loop (in terms of capabilities) with the introduction of its autonomous 8R tractor. We estimate precision ag presents an over-$7 billion sales opportunity for the ag leader this decade.

Business Strategy & Outlook

We assign Deere a wide economic moat rating, underpinned by intangible assets and switching costs. Deere has built one of the world’s most recognizable brands, which has led to strong brand loyalty among farmers. The company has consistently provided customers with reliable, high-quality products, while working to reduce the total cost of ownership. These factors have led to Deere becoming one of the world’s most valuable brands. The strength of its brand and extensive dealer network has solidified Deere as the market leader for agricultural equipment. Deere delivers world-class products, in addition to value-added services to customers through its global dealer network. We believe smaller local and regional competitors will struggle to win market share in agriculture and construction end markets globally, allowing Deere to maintain its strong market share positions.

Deere’s intense brand loyalty among farmers and strong competitive positioning leads to pricing power. For decades, the company has consistently produced best-in-class agricultural equipment, leading to the largest installed base in the industry. Deere has been at the forefront of innovation in farming, mechanizing crop production, allowing farmers to do more with less. Today, the company’s equipment can help farmers save on operation costs (use less fuel, chemicals, and labor), while also increasing crop yields (without having to materially increase farm acreage). Farmers value premium products (high specifications and features) that can withstand high utilization and operate outside of daylight hours. We believe Deere benefits from pricing power, manifested from its brand familiarity of more than a century and ability to continually provide innovative products. Notably, the company’s large agricultural equipment command premium pricing due to the value added from its product features and technological capabilities (boosts farmer productivity). Customers come to Deere not only for the best products in the industry, but also for its ability to provide aftermarket parts on-demand and services to keep their machines running, reducing machine down-time.

Additionally, the company has been committed to improving machine efficiency. Deere’s precision agriculture solutions aid farmers in field preparation, planting, chemical spraying, and harvesting. Tillage equipment used in field preparation can utilize guidance systems to reduce overlap in each machine pass, collect data on field conditions (satellite mapping), and be flexible enough to adjust depth and down pressure maneuvers. In planting, Deere’s machines can precisely place and space seeds in the field, all while moving up to 10 miles per hour faster than previous models (without losing accuracy). Farmers can also apply chemicals (herbicides, pesticides, and fungicides) to weeds through customized spray solutions (machines can control individual nozzles to dispense a spray). When plants are ready to be picked, Deere’s products can harvest more capacity, without reducing crop quality or losing crops, in addition to saving on fuel costs. We believe Deere’s superior product performance supports the firm’s brand equity and pricing power.

Deere’s products help farmers save on farming input costs, limit machine maintenance and repair costs, ultimately leading to a lower total cost of ownership. We believe this dynamic exists for a few reasons. First, the company’s focus on improving machine efficiency through product innovation has boosted productivity for farmers through the reduction in input costs (less chemicals, fuel, and labor needed to produce crops compared with years past). Deere’s precision solutions allow farmers to become more informed on what’s driving higher crop yield, from optimal seed placement to targeted chemical spraying. Second, the company’s higher-margin aftermarket business provides farmers priority on proprietary parts and services through its extensive dealer network, limiting service intervals and machine down-time. Additionally, machine connectivity helps both customers and dealers track data (machine utilization rates and productivity) to inform future service needs, allowing farmers to plan maintenance versus having to service machinery when they fail (can be disruptive in farming given finite windows to carry out farming operations).

The total cost of ownership is a focus for customers in developed markets, who look for machines that help minimize on future costs (labor, maintenance and repair, spare parts, fuel, and insurance costs) and are not necessarily looking for the cheapest up-front equipment (primarily a focus for customers in developing markets). Cheaper equipment can increase the likelihood of machine failure during operation, leading to lost productivity that cuts into an operator’s profitability (mission-critical equipment). Fuel consumption costs are another lever that operators can focus on to drive down total ownership costs. Deere offers a wide range of products that enhance fuel efficiency, specifically through its electric drivetrain offerings. These products also help the company address carbon emissions concerns; which is increasingly becoming a point of focus for regulators. We think Deere’s risk to increased emissions regulation is moderate given its continued focus on producing next-generation products that reduce machine emissions.

We believe Deere is a leader in the agriculture industry when it comes to helping customers reduce the total cost of ownership. Its products employ better efficiency and output for farmers compared with competitors, allowing them to spread costs over the lifetime of equipment (operating leverage as crop yields increase). We believe this dynamic supports its brand value in the eyes of customers looking to optimize their operations.

We also think Deere’s construction business is strong, thanks to its Wirtgen acquisition in 2017. Prior to the acquisition, the company’s product portfolio was focused on earthmoving equipment, such as, bulldozers, graders, wheel loaders, and excavators. That quickly changed as Wirtgen expanded the product portfolio to include both road construction (milling, paving, and compacting) and mineral equipment (surface miners, crushers, and asphalt plants). Today, the move has taken Deere’s construction business from being a top 10 global player to a top three player behind Caterpillar and Komatsu. Customers value Wirtgen’s premium brands given its ability to consistently deliver strong product performance. We believe this has led to the construction business developing pricing power. The segment’s profitability has improved since the acquisition, showing the near term looks bright. Additionally, we think Wirtgen’s strong position in the road construction business globally gives Deere access to new customers in emerging markets.

Deere’s extensive dealer network distributes products and provides access to proprietary aftermarket parts and services across multiple geographies. The breadth of Deere’s dealer network is unmatched, with over 2,000 dealer locations in North America and approximately 3,700 globally (has a significant presence on every continent). These dealers are often very large organizations that exclusively sell Deere products. We think it’s very difficult for existing competitors and new entrants to replicate the size and coverage of Deere’s dealers. Fully stocking a branch is challenging without similar product breadth to Deere, hence, why many competitors’ products are sold at dealerships that carry multiple product lines. Deere’s value proposition not only consists of its high-quality products, but it also includes the reliable product support provided by dealers. When customers need parts or machine servicing, they can rely on the dealer network to reduce their machine down-time.

Deere’s mission-critical equipment and increased focus on its installed base through aftermarket and service offerings keep customers from switching. The company’s machines perform mission-critical functions for farmers, who work during a finite window during the year. For customers, switching to an alternative product poses significant risk to their operations, with the potential for disruptions from machine failures and long lead times to service equipment. The high cost of failure associated with switching away from Deere’s products increases the likelihood of missing valuable time to plant and harvest crops, ultimately cutting into a farmer’s profitability. Deere’s service agreements give customers priority on proprietary aftermarket parts and services from dealers, making it easy to understand what the total cost of a machine will be throughout its operating life.

Furthermore, customers invest a significant amount of time and money into machinery, creating additional friction to switch products. The purchase price of heavy machinery can run up into the hundreds of thousands (and can get into the low-million-dollar range for combines), in addition to the time it takes machine operators to fully train on a machine to reach optimal productivity. The company’s parts distribution and extensive dealer network provide customers with aftermarket parts and reliable services to ensure their equipment operate efficiently, saving them from the headache of machine down-time and from having to search for parts independently (parts are not easy to replace). Customers also find value in Deere’s strong secondary market, where sellers of used equipment benefit from high resale values, helping reduce the total cost of ownership.

We do not think Deere’s wide economic moat faces any substantial threats from environmental, social, and governance risks. Deere has exposure to product safety issues, carbon emissions and environmental regulation, but we do not view them as material enough to include in our valuation. Product safety issues include both customer injuries while operating Deere machinery and injuries suffered by Deere employees in the production of products. Carbon emissions regulation is increasingly a topic of discussion, but we think Deere is already hedging against this risk through the development of next-generation products that reduce the carbon emissions of its products, namely its electric drivetrains.

Additionally, we think the effect from climate change and regulation by government authorities will likely be incremental rather than immediate. Both the agriculture industry and academic institutions are studying how the effect of changing weather patterns will impact farmer growing operations. For example, academic institutions are focusing on the effects of growing crops in warmer climates. Technology is being used as a critical input to understand what factors drive successful crop generation under this scenario. Deere is also exposed to environmental regulation, largely stemming from the environmental impact that agricultural machines have on soil and water quality. We believe Deere faces little risk on this front, as the company continues to invest in next-generation products that will aim to reduce emissions.

Another important topic in the agriculture space is the focus on gasoline blending mandates for internal combustion engine vehicles by government authorities around the world (corn is a major input to the ethanol used in gasoline blending). We think biofuel targets will lead to modest ethanol gasoline adoption, acting as a support to corn demand. However, this positive factor could be offset over the next two decades, as governments start to push for electric vehicle adoption, moving away from ICE vehicles.

Wide

Economic Moat

Deere & Company

Deere & Co. engages in the manufacture and distribution of equipment used in agriculture, construction, forestry, and turf care. It operates through the following segments: Agriculture and Turf, Construction and Forestry, and Financial Services. The Agriculture and Turf segment focuses on the distribution and manufacture of a full line of agriculture and turf equipment and related service parts. The Construction and Forestry segment offers machines and service parts used in construction, earthmoving, road building, material handling and timber harvesting. The Financial Services segment finances sales and leases by John Deere dealers of new and used agriculture and turf equipment and construction and forestry equipment. The company was founded by John Deere in 1837 and is headquartered in Moline, IL.

Earnings data Q4 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Just a few days after Evercore ISI downgraded Deere & Co (NYSE:DE) on agricultural production cuts , Canaccord Genuity slashed DE's rating to "hold" from "buy," with a steep price-target cut to $400 from $530.

Another Analyst Downgrade for Deere Stock

The downgrade follows on management's lowering its outlook for industry demand in South America. Falling crop prices imply pressure on farmers' income and spending.

Why Shares of Deere Fell Again Today

Wondering how to pick strong, market-beating stocks for your investment portfolio? Look no further than the Zacks Style Scores.

Why Deere (DE) is a Top Value Stock for the Long-Term

AGCO

AGCO Corporation is becoming a strong competitor in the agriculture industry, owning top tractor brands and catching up in cutting-edge technologies. The company benefits from tailwinds such as global population growth, increasing demand for protein, and the need for equipment upgrades. AGCO has an aggressive expansion strategy, aiming to achieve $1 billion in precision sales and $1.5 billion in Fendt sales by 2025.

AGCO: Cultivating Success In Deere's Backyard

CNH Industrial NV

Evercore ISI downgraded both Deere & Co (NYSE:DE) and CNH Industrial NV (NYSE:CNHI) to "in line" from "outperform" today, citing agricultural production cuts.

2 Stocks Downgraded on Agricultural Production Cuts

Evercore ISI lowered its price target on the company's shares to $424 from $456.

Deere Stock Got Downgraded. That Could Be a Buy Signal.

Deere shares were downgraded by Evercore. The analyst sees demand falling in important parts of the world.

Why Deere Stock Is Falling Today

Manitowoc Company

Quanta Services

According to Morningstar , industrial stocks are affiliated with companies that manufacture machinery, handheld tools, industrial products, aerospace, defense and transportation. The best industrial stocks to buy are those that are heavily exposed to the energy revolution, U.S. economic growth, government infrastructure spending and the onshoring trend.

The 3 Most Undervalued Industrial Stocks to Buy in September 2023

Caterpillar

Crown Castle International

Extra Space Storage

General Mills

Hershey

Lockheed Martin

No matter where you are in your investment journey, saving for retirement is probably one of your top goals. That's why there's never a bad time to look for undervalued retirement stocks.

The 7 Most Undervalued Retirement Stocks to Buy in a September 2023

Automatic Data Processing

Ares Management

Cigna

Coterra Energy

Intuit

Mastercard

Old Dominion Freight Line

PulteGroup

Vanguard Dividend Appreciation ETF

Zoetis

This monthly series of articles focuses on DGI stocks likely to provide a high rate of dividend growth rather than a high current yield. We use our proprietary models to rate quantitatively and qualitatively and select the top ten names from an initial list of nearly 400 dividend stocks. The article provides criteria for selecting high-growth dividend stocks. It offers a step-by-step guide on structuring a portfolio based on this strategy.

Our Top 10 Picks For Dividend Growth Stocks - September 2023

The popular investment manager is better known for innovative growth stocks than dividend stocks.

1 Spectacular Cathie Wood Dividend Stock to Buy Now in September

Coca-Cola

Passive income investors have two excellent choices in Coca-Cola and Deere.

Best Dividend Stock to Buy: Coca-Cola Stock vs. Deere Stock

I examine whether John Deere has the potential to appreciate ten times over with its current valuation as part of 'The Hunt For Potential 10x Returns' series. As previously done, I use a rating system based on factors such as returns on invested capital, insider ownership, share repurchases, gross profit margin, and intangibles to evaluate the company. Deere scored 43/50 on the 10-bagger scale, supported by its high profitability, growing profit margins, and strong industry potential.

The Hunt For Potential 10x Returns: Deere Has High Profitability And Secular Tailwinds

Avnet

Bank of Montreal

Greif

Summit Financial Group

Summit Financial Group, Inc. (SMMF), Greif, Inc. (GEF), Bank of Montreal (BMO), Avnet, Inc. (AVT) & Deere & Company (DE) recently hiked dividends.

5 Stocks With Recent Dividend Hikes Amid Market Volatility

CVS Health

Illinois Tool Works

National Grid

Orrstown Financial

Provident Financial Services

Starbucks

AT&T

Verizon

Essential Utilities

2023 has been one heck of a year. The S&P 500 is close to all-time highs. The Fed raised interest rates in July, as the economy is still on fire. The retirement accounts brought in a total dividend income amount of $379.48 or 22% of the dividend income total, similar to last month. Dividend increases created $42.95 in additional passive dividend income.

Dividend Income Summary: Lanny's August 2023 Summary

Deere stock is cheap relative to its historical average. But valuing cyclical stocks solely on their price-to-earnings ratio is a big mistake.

Why Deere Stock Isn't as Cheap as It Looks

Aaron's

Ally Financial

Apple Hospitality REIT

Blackstone Group

Blackstone Mortgage Trust

Energizer Holdings

FutureFuel

Foot Locker

Fidelity National Financial

GoDaddy

Hannon Armstrong Sustainable Infrastructure Capital

Hawaiian Electric Industries

Highwoods Properties

Liberty Oilfield Services

Lincoln National

Vail Resorts

Orion Office REIT

Permian Resources Corp

RBC Bearings Inc

RE/MAX Hld

S&P Global

Sensata Technologies Hld

Sensient Technologies

Trinseo PLC

Universal Insurance Hlds

Vistra Energy

Airbnb

NEW YORK , Sept. 1, 2023 /PRNewswire/ -- S&P Dow Jones Indices ("S&P DJI") will make the following changes to the S&P 500, S&P 100, S&P MidCap 400 and S&P SmallCap 600 indices effective prior to the open of trading on Monday, September 18, to coincide with the quarterly rebalance.

Blackstone and Airbnb Set to Join S&P 500; Others to Join S&P 100, S&P MidCap 400 and S&P SmallCap 600

Walgreens

Blackstone Inc. BX, -1.77% and Airbnb Inc. ABNB, +0.87% will join the S&P 500 index SPX, +0.18% before trading opens on Sept. 18, replacing Lincoln National Corp. LNC, +2.14% and Newell Brands Inc. NWL, +1.23%, S&P Dow Jones Indices said on Friday.

Airbnb, Blackstone to join S&P 500, while Deere will replace Walgreens in S&P 100

Deere continues to raise its full-year guidance. The company is managing inventories to ensure it doesn't get caught on the wrong side of an industrywide slowdown.

With Profits Set to Quadruple from Five Years Ago, Are Investors Making a Mistake by Selling This Explosive Dividend Stock?

Alamos Gold

Gaming and Leisure Properties

Daily Dividend Report: AGI,GLPI,DE,PWR,CHX

Daily Dividend Report: Alamos Gold, Gaming And Leisure Properties, Deere, Quanta Services, ChampionX

Deere & Co. DE, +2.26% said Wednesday its board has approved an increase in its quarterly dividend to $1.35 a share from $1.25 previously. The maker of agricultural equipment said the new dividend will be payable Nov. 8 to shareholders of record as of Sept.

Deere & Co. raises quarterly dividend to $1.35 a share vs. $1.25 previously

MOLINE, Ill. , Aug. 30, 2023 /PRNewswire/ -- The Deere & Company (NYSE: DE) Board of Directors today declared a quarterly dividend of $1.35 per share payable November 8, 2023 to stockholders of record on September 29, 2023.

Deere & Company Raises Quarterly Dividend

The agriculture industry may be near the top of a cycle. But years of strong profits are helping Deere invest in its long-term growth.

Is the Best Over for Deere Stock?

On August 18th, the agriculture and construction machinery maker crushed Wall Street's Q2 earnings per share (EPS) estimate by nearly $2.00. Despite the beat, Deere's fourth in a row, its share price dipped below $400 in a down market.

Deere Stock: 5 Reasons the Pullback Is an Opportunity

GFL Environmental

Infrastructure stocks are set to outperform over the next decade as the United States ramps up infrastructure spending. Under the Infrastructure and Jobs Act, the Biden Administration's Bipartisan Infrastructure Bill is one of the largest infrastructure bills in U.S. history.

The 3 Best Infrastructure Stocks to Buy Now: August 2023

News for Deere & Company Stock (DE)