DE Deere & Company
A premier cyclical franchise with improving economics, but the market price demands unusually durable growth and margins.
The story
Deere is a cyclical agricultural-equipment leader whose dealer network, installed base, captive finance arm, and precision-agriculture ecosystem create meaningful switching costs. The current agricultural downturn is pressuring equipment demand, but recurring technology adoption and disciplined production should support margins above historical trough levels. It remains a mature cyclical franchise rather than a high-growth software platform.
The first-year growth assumption moves from -4% to 2% because TTM revenue indicates stabilization after the sharp agricultural-equipment correction. The target margin rises modestly from 16.5% to 18% as current profitability and precision-ag mix suggest some structural improvement, while conservative growth, reinvestment efficiency, and risk assumptions acknowledge cyclicality and the valuation gap.
Value drivers
| Revenue growth (Y1) | 2.0% |
| Terminal growth | 2.5% |
| Forecast horizon | 8y |
| Target operating margin | 18.0% |
| Years to target margin | 7 |
| Sales-to-capital | 0.75 |
| Beta | 1.05 |
| Failure probability | 0.5% |
| Cost of capital (WACC) | 8.8% |
| Terminal WACC | 8.6% |
Valuation bridge
| PV of explicit FCFF | 33.98B |
| PV of terminal value | 48.05B |
| Equity value | 26.22B |
| ÷ shares → per share | $97.08 |
News
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- Deere’s $20 Billion Precision Ag Push Is Transforming Farming– What That Means For the Stock
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- Deere (DE) Following Right To Repair Deal Has Its Valuation Back In Focus
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 47.24B | 2.0% | 19.5% | 7.35B | 1.24B | 6.12B | 5.62B |
| 2 | 48.22B | 2.1% | 19.2% | 7.41B | 1.30B | 6.11B | 5.16B |
| 3 | 49.25B | 2.1% | 19.0% | 7.47B | 1.38B | 6.09B | 4.73B |
| 4 | 50.34B | 2.2% | 18.7% | 7.54B | 1.45B | 6.08B | 4.34B |
| 5 | 51.49B | 2.3% | 18.5% | 7.61B | 1.53B | 6.07B | 3.98B |
| 6 | 52.71B | 2.4% | 18.2% | 7.68B | 1.62B | 6.06B | 3.66B |
| 7 | 53.99B | 2.4% | 18.0% | 7.76B | 1.71B | 6.06B | 3.35B |
| 8 | 55.34B | 2.5% | 18.0% | 7.96B | 1.80B | 6.16B | 3.13B |
Key risks
- A prolonged farm-income downturn suppresses equipment replacement demand
- Captive-finance leverage magnifies credit losses and makes enterprise valuation sensitive to debt treatment
- Precision-ag monetization fails to deliver software-like recurring economics
Catalysts
- Agricultural equipment orders and dealer inventories begin a durable recovery
- Higher paid adoption of precision-agriculture products supports resilient margins
⚠ Extreme gap to market price — large, heavily-covered stocks are rarely mispriced this much; the gap likely embeds disruption, decline, or balance-sheet risk the model underweights. Treat as a flag to investigate, not a verdict.