VALUATION HIGHLIGHTS

1. Agriculture and Turf Equipment constitutes 62% of the Trefis price estimate for Deere's stock.
2. Construction and Forestry Equipment constitutes 34% of the Trefis price estimate for Deere's stock.

WHAT HAS CHANGED?

1. DE Stock vs. S&P500 Performance

The changes in DE stock over the recent years have been far from consistent. Returns for the stock were 29% in 2021, 27% in 2022, -5% in 2023, and 8% in 2024.

In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that DE underperformed the S&P in 2023 and 2024.

2. Latest Earnings — Q1'25

Deere posted a 35% fall in equipment sales, which stood at $6.8 billion in Q1'25. While construction and forestry segment sales were down 37%, production and precision agriculture sales fell 38%, and small agriculture and turf sales were down 28% y-o-y.

The company's net income fell 50% to $869 million, compared to $1.75 billion in the prior-year quarter. On a per-share basis, earnings came in at $3.19 in Q1'25, compared to $6.23 in the prior-year quarter. Overall, the company's sales were below and earnings above the street estimates. Deere provided its outlook for fiscal 2025, with net income forecast to be around $5.0-$5.5 billion.

BUSINESS SUMMARY

Deere & Company, widely known as John Deere, is a manufacturer headquartered in Moline, Illinois, specializing in agriculture and construction equipment. The company also produces turf and forestry equipment, along with service parts for its products.

In addition to its manufacturing operations, Deere has a financial services arm that provides financing options for the purchase or lease of its equipment.

Deere maintains a significant global footprint through its network of manufacturing facilities, joint ventures, and dealerships.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Deere's value that present opportunities for upside or downside to the current Trefis price estimate for Deere:

• Deere's Agriculture and Turf Equipment Revenue: Deere's Agriculture and Turf Equipment Revenue saw an increase from $24 billion in 2019 to $33 billion in 2024. We anticipate this figure will grow to approximately $44 billion in the near future. However, if Deere's agriculture and turf revenues experience stronger growth and reach $52 billion instead, this could lead to a 10% increase in Trefis' current price estimate for Deere. Conversely, if revenue growth is sluggish and remains around the $33 billion level, our price estimate for DE could see a 10% downside.


• Deere's Construction and Forestry Equipment Revenues: Deere's Construction and Forestry Equipment Revenues saw an increase from $11 billion in 2019 to $13 billion in 2024. We anticipate a gradual rise in this segment's sales to $20 billion in the coming years.
  However, if these revenues grow faster than expected and reach $26 billion by the end of our forecast period, this would suggest an upside of over 10% to Trefis' current price estimate for Deere. Conversely, if the revenue remains around the $13 billion level, it would imply a downside of 10%.

SOURCES OF VALUE

Agriculture & Turf Equipment Division

Deere's Agriculture and Turf equipment division stands as the company's largest revenue source. In fiscal year 2024, this segment generated $33 billion of Deere's total $52 billion revenue. The segment's strong profitability, supported by Deere's significant market share in the agricultural equipment sector, is expected to ensure the company's long-term financial success. Furthermore, the growing global population's increasing food needs position this segment for sustained growth over the long term. However, in the near term, the division faces challenges such as decreasing demand due to falling farm income and rising interest rates.

Growing presence in developing markets

Deere has established a significant presence in key developing markets like India, China, and Latin America. To meet the demand in these regions, the company operates manufacturing plants, distribution centers, warehouses, and sales offices. Furthering its market penetration efforts, Deere also provides financial services. The long-term outlook for Deere in these developing economies is positive, driven by economic growth and increased investment in agriculture and construction.

KEY TRENDS

Growing population size and affluence

With the global population projected to continue its expansion, the need for food will also increase, driving a greater demand for agricultural production.

Migration to urban areas

A significant migration of individuals to urban centers in pursuit of improved employment prospects and living standards is underway, a trend particularly evident in developing markets. This urbanization has necessitated increased investment in infrastructure to accommodate the growing urban population, consequently driving growth in the sales of construction equipment.