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Deere Stock Research Report 2.13.2024

Ticker: Deere & Company
Sector: Industrial
Industry: Farm & Heavy Machinery
Headquartered: Illinois, USA
Moat: Wide – Intangible Asset – Brand, Process Power, Switching Cost

Action at date of this post

Strong Buy as of 2.13.2024
The price and value intersection points to buying as much as the full amount you intend on investing or somewhere in the range of 50-100% of your intended position. Then look for opportunities to complete the position or buy in systematically over time.


Deere Corporate Overview

Deere & Company, commonly known as John Deere, is a venerable American corporation with a rich history dating back to its founding in 1837 by John Deere himself. The company has established itself as a global leader in the manufacturing of agricultural machinery, construction equipment, forestry machinery, and turf care equipment. John Deere’s iconic green and yellow machinery is synonymous with reliability, innovation, and efficiency in the agricultural sector. The company’s diverse product portfolio includes tractors, combines, planters, loaders, and a wide array of equipment designed to meet the evolving needs of farmers and construction professionals.

One of the key factors contributing to John Deere’s success is its unwavering commitment to technological advancement. The company has been at the forefront of incorporating cutting-edge technologies, such as GPS guidance systems and precision farming tools, to enhance productivity and sustainability in agriculture. John Deere’s global reach extends across continents, serving customers in various industries and sectors. With a reputation for quality and a dedication to meeting the challenges of the modern world, John Deere continues to play a pivotal role in shaping the future of farming, construction, and related industries worldwide.


Deere Segment Analysis

Deere operates in four business segments: 1. Production and Precision Agriculture, 2. Small Agriculture and Turf, 3. Construction and Forestry, 4. Financial Services. As a percent of total revenue Production and Precision Ag make up 45%, Construction and Forestry 24%, Small Ag and Turf 23%, and Financial Services 8%. Some images from the most recent company Factbook from January, 2024.


Deere Moat Source

Deere’s wide moat is underpinned by it’s iconic and deeply entrenched brand among farmers worldwide. The combination of best in class machinery and technology the company deploys service and maintenance through its extensive dealer network of over 2,000 in North America and distributors/dealers in over 100 countries. Thanks to the brand, Deere enjoys strong pricing power. With an industry leading install base the company deep relationships that touches every aspect of farming. This has leads to significant time and money in switching costs.


Deere Growth Outlook

Deere is truly global company that is intimately connected to the global macro environment. To be sure wars, trade wars, and rising interest rates can all have a negative impact on the company from sales, to service to financing operations. I do not set these factors aside. Rather, it’s a reality the company has faced since its founding in the 1800’s. The current macro environment is challenging for the company. But, technology and its placement within the company are offering significant opportunities. 

Deere’s customers are always seeking to improve profitability, productivity and sustainability of their equipment. Deere is keenly aware of this and goes to great lengths to improve machine and technological efficiency. It’s only in the last 5 years that significant technology was made available to customers in the shape of precise global navigation satellite system tech, connectivity to machines, on board sensors, automation software and analytics applications. It is still early days for Deere deploying these advanced systems for older installed bases and sales of new equipment. 

The return on the investments by early tech and new equipment adopting famers is just now becoming useful to Deere in its sales process. The set up of less farmable acres, more people and more demand from the earth to provide means farmers will be looking for more from their equipment and technology. 

On the construction side of the business, the global spend on infrastructure is robust which Deere stands to benefit from. The company’s purchase of Wirtgen in 2017 expanded its construction equipment from earth movers and graders to road construction equipment and mineral construction equipment. This moved Deere to number three in the world in construction equipment. With top of line equipment in its portfolio, Deere has already improved margins in this segment of the company. 


Deere By The Numbers

Deere’s revenue growth in the last 4 years has contributed to solid financial performance. Free cash flow generation has been sound and the balance sheet is in good order. ROIC has been steadily growing along with margins. On the valuation side the company looks to be fairly valued in the current environment with the P/S and P/FcF ratios in line with 7 year medians.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing, the author holds a position in Deere.

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