Deere & Company (DE)

Deere & Company (DE)

Summary: On Sale

Score: 17/20

MOS: 80%

Share Price: $348

Sticker Price: $1,749

Is Deere & Company stock a good buy?

John Deere or also known as Deere & Company, is a global corporation that manufacturers agricultural, heavy equipment, diesel engines, drivetrains, lawn equipment, and more. They were founded in 1837 and are headquartered in Moline, IL. Today they have over 69,000 employees in office locations in the US, Argentina, Brazil, Canada, China, Finland, France, Germany, Italy, India, Netherlands, Singapore, South Africa, Norway, Russia, Spain, Sweden, Thailand, Ukraine, and the UK.

 

Interesting Facts

  • John Deere, born in 1804, was originally a blacksmith who started making tools such as pitchforks and shovels.
  • John Deere started selling a self-scouring steel plow in 1937 which was essentially a steel saw blade attached to a wooden plow. Prior to this device, most plows were iron or wood and less effective for farming.
  • The traditional way of doing business in the early 1800s and prior was to make the product when it was ordered. Deere realized this process was too slow and was not a viable business model. He decided to make plows before putting them up for sale which allowed customers to not only see what they were buying beforehand but also allowed his customers to purchase and walk away with the product the same day. This way of doing business began to spread fast through word-of-mouth.
  • In 1842 he built a two-story factory that allowed him to build 100 plows that year and 400 plows in 1843. By 1849 production volumes increased to 2,400 plows per year.
  • In 1868 the company name John Deere was incorporated as Deere & Company.
  • In 1869 Deere & Company introduced retail stores around the US which greatly increased sales.
  • In 1869 they won “Best and Greatest Display of Plows in Variety” at the 17th annual Illinois State Fair. They won $10 for the award which is equal to $200 today.
  • In 1907 they entered into the tractor industry.
  • In 1927 they manufactured their first combine harvester.
  • By 1930, they manufactured a hillside harvesting technology. This allowed farmers to effectively use combines to harvest grain on hillsides with up to a 50% slope.
  • On an episode of the Travel Channel series Made in America that profiled Deere & Company, host John Ratzenberger stated that Deere & Company never repossessed any equipment from American farmers during the Great Depression.
  • During World War II, the great-grandson of John Deere, Charles Deere Wiman, was president of Deere & Company and accepted a commission as a colonel in the US Army. Wiman directed the farm machinery and equipment division of the War Production Board. In addition to farm machinery, Deere & Company manufactured military tractors, transmissions for the M3 tank, aircraft parts, ammunition, and mobile laundry units.
  • In 1947 they manufactured self-propelled combines called the model 55.
  • In 1956 they bought out German tractor manufacturer Heinrich Lanz AG.
  • In 1958 they built a factory in one of the strongest Agricultural countries in the world, Argentina.
  • By 1962 they had 35,000 employees globally.
  • By the turn of the 21st century they were considered one of the world’s top farm machinery manufacturers.
  • In 2017 they acquired Blue River Technology, a company that specialized in machine learning for agriculture

Although Deere & Company started its humble beginnings with plows, today the company manufactures a wide range of products for the following industries. Here is a breakdown per industry.

  • Agriculture – Tractors, cutters, shredders, harvesting equipment, hay and forage equipment, planting equipment, seeding equipment, sprayers, tillers, and loaders.
  • Lawn and Garden – Lawn tractors, zero-turn mowers, compact tractors, Gator™ Utility Vehicles.
  • Construction – Dump trucks, backhoes, compact track loaders, crawler loaders, dozers, excavators, moto graders, scraper systems, skid steers, tractor loaders, and wheel loaders.
  • Landscaping and Grounds Care – Commercial mowers, cutters and shredders, and front end loaders.
  • Golf & Sports Turf – Precision cut mowers for golf greens and turf field managers for sports fields including soccer, baseball, American football, and more.
  • Forestry – Skidders, wheeled feller bunchers, tracked feller bunchers, forwarders, harvesters, swing machines, knuckleboom loaders, and shovel loggers.
  • Engines and Drivetrain – Diesel engineers, axles, gear drives, pump drives, and transmissions.
  • Rental Equipment – Backhoes, compact track loaders, dozers, excavators, motor graders, skid steers, tractor loaders, and wheel loaders.

 

Latest News

This article from forbes.com states the Q4 earnings report highlighted that revenues increased 19% year over year. Construction and forestry revenues were up 14% while agricultural and turf equipment were up 20%. The article also states that Deere & Company revenues for 2022 expect to be up around 20%.

This article from pulse2.com states that Morgan Stanley raised their price target to $485. The article does state their supply chain may face some friction but they should face limited risk to sales momentum.

This older article from 2020 written by fool.com provides insight on why this stock has continued to do so well. Deere & Company is placing smart farming technologies as a top priority. Some of the questions that Deere & Company is helping answer with technology include what seeds should I plant this year? When should these seeds be planted? How much water should I use? How much fertilizer should I use? When should I harvest? Farmers have relied on experience and knowledge passed from generation to generation but times are changing. Today, farmers can rely on real-time data points to make more precise decisions.

This article from stockmarket.com talks about 3 infrastructure stocks to pay attention to. Those stocks include Nucor (NUE), Caterpillar (CAT), and Deere & Company (DE). The article emphasizes the fact that Deere & Company has done a nice job managing supply chain issues over the last two years.

This article from syngenta-us.com states the farming industry will continue to grow as long as the world population continues to grow. In fact, this article states the world population is expected to reach 9.1B in 2050, up from 7.4 in 2016.

This article from talkbusiness.net states the world’s rapidly growing population and the push of many people from the poverty ranks into the middle class will fuel significant growth in the agriculture industry.

 

Competitive Comparison

Deere & Company (DE)

Summary: On Sale

Score: 17/20

MOS: 80%

Share Price: $348

Sticker Price: $1,749

Revenue: $35B

 

Escorts Limited (ESCORTS.NS)

Summary: On Sale

Score: 16/20

MOS: 53%

Share Price: ₹1,858.85 ($24)

Sticker Price: ₹3,916.18 ($52)

Revenue: ₹68B ($900M)

 

Caterpillar (CAT)

Summary: Watch

Score: 16/20

MOS: 1%

Share Price: $195

Sticker Price: $198

Revenue: $41B

 

The Toro Company (TTC)

Summary: Watch

Score: 12/20

MOS: 37%

Share Price: $103

Sticker Price: $164

Revenue: $3B

 

4 Ms

Now let’s take a look at the 4 M’s. A wise investor should always look past the numbers and look at the business.

MOS: A score of 17/20 and a MOS of 80% shows the financials of Deere & Company are very strong. When you take a closer look at the scores you can see the ROIC is 5 out of 6 which shows the company continues to reinvest profits back into the company to grow the company. The EPS growth rate is 3 out of 3 which shows the company continues to maintain profitability. The cash growth rate is 3 out of 3 which shows they are generating a lot of cash which may be used on R&D.

Meaning: We know the agricultural industry will continue to grow. As long as the world population increases, people will need food. It’s also important to note the revenue stream diversification as the company also serves other industries including lawn and garden, construction, golf & sports, forestry, engines, and rentals. 

Moat: Deere and Company serves a wider range of industry than its competition. For example, Escorts Limited is an India based company that only focuses on agriculture, construction, and railway. Escorts only has office locations in India and sells products to 40 countries. On the other hand, Deere & Company has office locations in 30 countries and sells products to 160 countries. Regarding the other competitors listed above, Caterpillar primarily focuses on the construction industry and Toro primarily focuses on the lawn care industry. The competitors are all great companies with great products but Deere & Company has much more diversified revenue streams. From an investment standpoint, this makes Deere & Company a better choice.

Management: John May has been serving as CEO of Deere & Company since 2020. He officially joined Deere & Company in 1997 after working as a management consultant at KPMG. Some of his other positions at Deere & Company include President of Worldwide Agriculture and Turf as well as CIO (Chief Information Officer) for Agricultural Solutions. Based on his experience, there are two career highlights I would like to point out. #1, he’s worked as a management consultant. Management consulting forces you to learn various business models at a deeper level than most. As a consultant you are assigned projects where you analyze the business and competition and in some cases implement processes or solutions that increase revenues and profits. I see a lot of business leaders with management consulting backgrounds. #2, he served as CIO. This tells us he has a strong emphasis on technology, specifically data. When you read or hear the titles CTO (Chief Technology Officer) and CIO, the difference is the CTO focuses on software and/or hardware while the CIO focuses on the data. Knowing that he has a tech background makes perfect sense for Deere & Company’s emphasis on smart farming. Overall, May is a great fit for CEO and I hope he continues to lead this company over the next decade.

 

Financials

Now let’s take a look at the financials. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

2017:  $29.7B

2018:  $37.3B

2019:  $39.2B

2020:  $35.2B

Revenue has slightly declined since 2019 but when looking at the last 4 quarters of 2020 have been higher than the previous quarters. We should expect higher revenues on the 2021 annual report.

 

Net Income (Found on the Income Statement)

2017:  $2.1B

2018:  $2.3B

2019:  $3.2B

2020:  $2.7B

Net Income has declined slightly but similar to the revenues, we could see improvements on the 2021 annual report.

 

EPS (Found on the Income Statement)

2017:  6.68

2018:  7.24

2019:  10.15

2020:  8.15

EPS has declined slightly. Typically the EPS will mimic the net income because EPS is net income divided by outstanding shares. 

 

Free Cash Flow (Found on the Cash Flow Statement)

2017:  -$392M

2018:  -$1.1B

2019:  -$37M

2020:  $4.8B

Free Cash Flow has significantly increased in 2020. To go from -$37M to $4.8B is impressive.

 

Total Assets (Found on the Balance Sheet)

2017:  $65B

2018:  $70B

2019:  $73B

2020:  $75B

Total Assets have consistently increased which is a great sign.

 

Total Liabilities (Found on the Balance Sheet)

2017:  $56B

2018:  $58B

2019:  $61B

2020:  $62B

Total Liabilities have increased which is okay. As companies grow, they need to hire more employees. More employees means more liabilities.

 

Total Debt (Found on the Balance Sheet)

2017:  $25B

2018:  $27B

2019:  $30B

2020:  $32B

Total Debt has increased which is okay.

 

Total Equity (Found on the Balance Sheet)

2017:  $9.5B

2018:  $11.2B

2019:  $11.4B

2020:  $12.9B

Total Equity has increased year over year which is a great sign.

 

Overall, the financials are great but there is some room for improvement with the revenues and net income. Based on the growing demand of the agricultural industry, we should see these numbers increase on the next earnings report. With the meaning, Deere & Company has a wide range of revenue streams in various industries. Some tech counterparts with similar revenue diversification include Microsoft, Amazon, and Google. With the moat, none of the competitors serve as many industries as Deere & Company. It’s important to note that in some cases more does not equal more but with a company that is close to 200 years old, you should have mastered product/market fit in a few different industries. With the management, John May is now going on 25 years at Deere & Company with prior experience and strong emphasis on tech. He’s a great fit for this company.

If you’re looking to diversify your portfolio with an industrial company, Deere & Company is worth a look.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.