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

Deere & Company's stock price has more than quadrupled since Warren Buffett sold most of his shares in 2016. The company, which is the largest manufacturer of farm equipment, has benefited from inflation and increased demand for automated solutions in the agricultural industry. Despite risks such as shrinking arable land, Deere & Company is expected to continue growing due to consistent R&D spend and strong demand for its products and technologies.

Deere: Why Buffett Got It Wrong

Automatic Data Processing

Costco

Coterra Energy

Dick's Sporting Goods

Intuit

Lennar

Mastercard

Microchip Technology

M&T Bank

UnitedHealth Group

Visa

Vanguard Dividend Appreciation ETF

Zoetis

This monthly series of articles focuses on DGI stocks that are 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. A balanced portfolio should have a mix of high-dividend growth stocks and high-yield dividend stocks, depending on the life stage. If you are in the accumulation phase and are several years away from retirement, high-growth dividend stocks would be more appropriate for long-term growth.

Our Top 10 Picks For Dividend Growth Stocks - July 2023

Invesco DB Agriculture Fund

VEGI: Agriculture Producers Capturing Several Macro Tailwinds

Solid demand and strategic initiatives are aiding Deere's (DE) performance amid cost and supply-chain headwinds.

Deere (DE) Benefits From Strong Demand Despite Cost Headwinds

The Zacks Focus List offers investors a way to easily find top-rated stocks and build a winning investment portfolio. Here's why you should take advantage.

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

Amazon

Disney

Delving into the realm of robotics makes investing in the future more exciting than ever. The story of the new age is intricately woven around artificial intelligence and robotics, and this sector presents high return possibilities, making certain robotics stocks potential millionaire makers.

3 Robotics Stocks to Catapult You into the Millionaires' Club

Passive income investors can grow their annual dividend income with these excellent stocks.

Best Dividend Stocks to Buy: 3M vs. Deere

Cigna

General Dynamics

Medtronic

Pfizer

Raytheon Technologies

Tech companies like Apple and Meta are crushing it on Wall Street. But the next wave of strong returns may come from stocks like Deere and Cigna.

Undervalued And Unsexy: 6 Bargain Stocks In Industrials And Healthcare

AT&T

AT&T and Deere each offer a healthy dividend yield for passive income investors.

Best Dividend Stocks to Buy: AT&T vs. Deere

Farming is a multi-trillion-dollar industry with significant growth potential. Deere has a strong footprint in selling all types of machinery.

Deere & Company Stock: Buy, Sell, or Hold?

While Cathie Wood may not be known for investing in dividend stocks, she holds a few gems.

My Top Cathie Wood Dividend Stock to Buy in July

HARRISON TOWNSHIP, Mich.--(BUSINESS WIRE)--Championship Thursday on Lake St. Clair started off with a bang, with Berkley pro Jordan Lee of Cullman, Alabama, taking advantage of the early morning bite to put together a five-bass limit weighing 23 pounds, 4 ounces to earn his third Bass Pro Tour win and the top award of $100,000 at the Major League Fishing (MLF) Bass Pro Tour General Tire Stage Six at Lake St. Clair Presented by John Deere Utility Vehicles. Lee's two-day Knockout and Championship.

Alabama's Jordan Lee Earns Third Career MLF Bass Pro Tour Win at General Tire Stage Six at Lake St. Clair Presented by John Deere Utility Vehicles

Zacks.com users have recently been watching Deere (DE) quite a bit. Thus, it is worth knowing the facts that could determine the stock's prospects.

Deere & Company (DE) is Attracting Investor Attention: Here is What You Should Know

Our Top 10 Picks For Dividend Growth Stocks - June 2023

Coca-Cola

Since these stocks are from different sectors, comparing P/S against one another may not be helpful.

Is Deere Stock A Better Pick Over KO?

Deere & Company posted strong fiscal Q2 results with sales up 30% to $17.4 billion, but inventory concerns have impacted the stock price. There was some concern about a buildup in large Ag inventory in the field. Despite the inventory concerns, demand remains strong and DE trades below its historical multiple, suggesting potential upside if it can report solid fiscal Q3 results.

Deere: All Eyes On Inventory

Deere & Company's focus on AI and automation in agriculture, strong financial performance, and declining price-to-earnings ratio indicate bullish potential. The technical analysis reveals bullish price structures, including a symmetrical broadening wedge and falling wedge, suggesting continued upward momentum. A surge past the $420 mark will disrupt the falling wedge pattern, potentially triggering a substantial upward rally.

Deere: Buy The Bullish Momentum (Technical Analysis)

Deere & Company has a solid financial performance as a global leader in agricultural machinery manufacturing. The company's stock looks overvalued based on my analysis, despite its long-term stability. Risks to consider include interest rate fluctuations, regulatory changes, and global trade policies.

Deere Stock Looks Overvalued

Deere & Company is revolutionizing agriculture with self-driving tractors and aims to deliver a fully autonomous, battery-powered electric ag tractor by 2026. The company reported strong Q2 earnings with revenues of $17.4 billion, a 30% YoY increase, and EPS of $9.65 per share, a 42% YoY increase. Deere has a growing dividend, a strong balance sheet, and an A credit rating, but short-term economic headwinds may impact the stock.

Deere & Company: Bringing Self-Driving To Farming

Deere (DE) benefits from strong order levels and strategic actions amid cost and supply-related headwinds.

Deere (DE) Gains From Solid Order Levels Despite Cost Woes

Investing in dividend stocks is a prudent way to generate passive income.

Best Dividend Stock to Buy: AT&T vs. Deere

AGCO

Caterpillar

With inflation pushing food prices ever higher, agricultural companies are coming to the rescue with better machines and greater efficiency. Hopefully, by producing more food at a lower cost, inflation can cool, and prices stabilize.

Top 3 Agricultural and Heavy-Duty Machinery Companies to Watch

Recently, Zacks.com users have been paying close attention to Deere (DE). This makes it worthwhile to examine what the stock has in store.

Deere & Company (DE) Is a Trending Stock: Facts to Know Before Betting on It

Deere (DE) reached a significant support level, and could be a good pick for investors from a technical perspective. Recently, DE broke through the 200-day moving average, which suggests a long-term bullish trend.

Deere (DE) Crossed Above the 200-Day Moving Average: What That Means for Investors

Costs for heavy equipment manufacturers should continue falling. The global economy, however, might escape entering a full-blown recession (or at least keep a recession muted).

News for Deere & Company Stock (DE)