迪尔公司(约翰迪尔)

Deere reported 6% equipment revenue growth to $11 billion and 7% EPS growth to $5.10 per share. Better-than-expected performance in Small Ag & Turf, or SAT, prompted the company to raise net income guidance to $4.75 billion-$5.00 billion from $4.50 billion-$5.00 billion.

Why it matters: Performance in SAT (15% growth) was led by strength in dairy farming, with particularly strong margin performance driven by strong execution in the factories. Construction & Forestry continued its recovery, posting 18% growth, driven by demand for mega-projects and a growing rental fleet. Most notable was performance in Production & Precision Ag, where revenue contracted 6% on ongoing sluggishness in North America and marginally worse performance in Brazil and Europe, echoing commentary from its peer group last month. However, management definitively called the cycle trough. Specifically, management cited two very reassuring metrics: first, the early order programs for many larger types of equipment already point to mid-single-digit growth next year. Second, it highlighted materially higher penetration rates of precision technologies, implying a richer mix.

Long view: While earnings have compressed significantly since the 2023 peak, Deere's performance has proved resilient by underproducing retail demand, allowing inventory levels to normalize as farmers eventually need to replace equipment and continue finding ways to drive efficiencies. The environment remains uncertain in terms of input costs and global trade, but commodity prices (and therefore farmer profitability) are improving. Further improvement along any of these vectors could accelerate the anticipated recovery in PPA.

The bottom line: We are increasing our fair value estimate for wide-moat Deere to $612 from $600, reflecting the time value of money. The confident tone around the cycle turning, particularly the early order data, caused the shares to trade up into the midsingle digits during Thursday trading.

We have a fair value estimate for Deere of $610 per share as the company boosted its guidance for 2026, aided by very strong recovery in SAT and CF as well as stabilization in PPA. This price objective equates to about 34 times our 2026 EPS estimate, which management acknowledges as trough. The valuation is far less demanding based on Deere’s (prior peak) 2023 results, with implied price/earnings of 18 times, which seems reasonable for a company targeting a 10% revenue CAGR through 2030.

Large agriculture in North America is expected to remain weak into 2026, offset by double-digit recovery in smaller agriculture and construction and forestry. Competitors have provided similar guidance, though we do find Deere’s outlook somewhat conservative. We anticipate ample recovery across segments in 2026 and beyond. For the core production & precision agriculture, or PPA, segment, we increased our average revenue growth rate over the remainder of our five-year horizon to 20% with margin expansion to an average of 26%, which assumes the company returns to peak margins of 26% in this segment. The trajectory of this forecast recovery modestly understates the company’s bounceback from the prior downturn during the pandemic. The margin expansion acknowledges that Deere is successfully executing on its strategy to sell more technology per machine and may ultimately prove to be conservative as Deere is in the early stages of employing newer business models, such as attaching high-margin licenses to some of its technology. With the company increasingly launching autonomous products, we believe the opportunities are compelling and the forecast is robust.

Our forecasts for small agriculture & turf and construction & forestry are more conservative, though generally in line with historical performance. Beyond the trough in fiscal 2025, we forecast an average growth rate of almost 13% for SAT and margin recovery to 17% (modestly below prior peak). Given that its market position here is less dominant than PPA, these figures seem appropriate even though several of the same drivers around connected machines and autonomous systems pertain here, as well. There may be a margin expansion opportunity in this segment, but we believe this is more of a “show me” story for management. For CF, we forecast a somewhat more modest growth rate of 9%, which is in line with our view for peers such as Caterpillar. We forecast margin expansion to an average of 17%, as well, which is also modestly below the prior peak and consistent with the segment’s historical performance. A review of Deere’s LEAP ambitions for CF implies less opportunity around connected machines compared with its agriculture-centric products. On a blended basis, our midcycle margin for the group of 20.3% is only modestly higher than management’s target of 20%.

Our Stage II forecast period incorporates an estimated investment rate of 14% and earnings before interest growth rate of 4% with perpetual growth of 3%. An 8.6% weighted average cost of capital derives from a market-average cost of equity and the firm’s current capital structure.

We assign Deere a wide Morningstar Economic Moat Rating, underpinned by intangible assets and switching costs. With a nearly 200-year operating history, the company has cultivated an iconic brand and significant customer loyalty, especially in agricultural markets. Deere is the preeminent global supplier of heavy agricultural machinery, with market share greater than 50% in the core North American market. For decades, the company has produced best-in-class agricultural equipment, leading to the largest installed base in the industry. Deere has been at the forefront of innovation in agriculture, allowing farmers to do more with less. Since 2012, the company’s equipment (tractors, tillers, sprayers, harvesters, and so on) has been increasingly “connected,” with digital communication of key farming data back to the John Deere Operations Center. The connected machine forms the basis of Deere’s technology stack and reflects significant intellectual property. The aggregation of so much data and knowledge to improve decision-making is equivalent to more farming seasons than most farmers could experience in a lifetime.

Deere is adding more high-margin technology to each vehicle produced. New machines represent only 5% of the installed base, so the margin accretion opportunity from retrofits is profound. The company is creating a virtuous circle where more data from its connected machines is leveraged back into its product designs. The objective is to help farmers save on all major areas of operating costs, allowing them to consume less fuel, chemicals (fertilizers, herbicides, and so on), and labor. Timing is uniquely critical in farming as the windows for planting and harvesting are quite narrow (weeks) and can vary due to weather conditions, climate change, and so on. As a result of the value added from Deere products’, the company’s large agricultural equipment commands premium pricing, and Deere captures a meaningful portion of the value it generates for its customers. The original equipment sale is a highly profitable one, per management. This pricing power is ultimately evident in superior operating margins, which have increased meaningfully as the company implemented its Smart Industrial strategy in 2020. Deere generates returns on invested capital well above its cost of capital.

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 even more globally. Dealers are often large organizations that exclusively sell Deere products. It would be very difficult for competitors to replicate the scale and scope of Deere’s network. Fully stocking a branch is challenging without similar product breadth to Deere, so many competitors’ products are sold at dealerships that carry multiple product lines. When customers need parts or machine servicing, they can count on the dealer network to reduce their machine downtime. Additionally, machine connectivity helps both customers and dealers track data (utilization rates and productivity) to inform future service needs, allowing customers to plan maintenance versus having to service machinery upon failure.

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 vital functions for farmers with very pronounced seasonal “growing” constraints. For customers, switching to an alternative product poses significant risk to their operations (both top and bottom line), with the potential for disruptions from machine failures and/or 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 with high operating leverage. For example, at the company’s 2022 investor day, management shared statistics that each day corn is planted outside the optimal window could cost farmers up to 1%/day in lost yield. 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 and enhancing the stickiness of the relationship.

Customers invest a significant amount of time and capital into machinery, creating additional friction to switch products. The purchase price of heavy machinery can run into the hundreds of thousands (and can get into the low-million-dollar range for the largest equipment, such as combines), in addition to the time it takes operators to train on a machine to reach optimal productivity. Customers also find value in Deere’s strong secondary market, where sellers of used equipment benefit from high resale values. Rather than segmenting its product portfolio via various price points, Deere products tend to have 4-5 different owners over a machine’s 15-year-20-year useful life. This means that different customer segments are very likely to find an affordable Deere product that adequately meets their needs and budget constraints. Beyond the smooth functioning of Deere’s products and the superior service and support offered by the dealer network, the role of the data and knowledge accumulated by Deere equipment cannot be understated for keeping customers from switching. As stated among the intangible assets, Deere products help inform customers how to optimally plant seeds (spacing, depth, and so on) to maximize yields and how to distinguish plants from weeds, thus saving on fertilizer or herbicide costs. The customer relationship is far more consultative than other types of heavy machinery that are ultimately more focused on moving dirt as efficiently and effectively as possible.

Deere will successfully expand its addressable market via ongoing product innovation (digital, autonomous, and so on) per management’s target of $150 billion and gain share.

The company retrofits a greater proportion of the hundreds of thousands of machines in the installed base with margin-accretive connected technology, structurally improving margins.

2025 is likely the trough of the agriculture cycle, and stronger revenue and earnings growth are ahead.

Global competitors increase market share via either product innovation (for example, Deere’s technology isn’t that difficult to replicate) or lower-cost offerings.

Management overstates its growth potential and customers aren’t willing to pay premium pricing for Deere’s solutions.

Operating results follow the agriculture cycle and Deere’s performance erodes with the fate of its customers (the company is more of a conventional manufacturer versus technology-enabled solution provider).