Deere & Co. Stock (DE) Suffers Headwinds While Planting the Seeds for Ag-Tech Dominance
Deere & Company (DE), a global industrial heavyweight, is weathering challenging macroeconomic conditions—including tariffs, softening demand, and interest rate pressures—with the steady hand of an experienced operator. Despite near-term headwinds, the company continues to build a strong long-term narrative through its leadership in precision agriculture technology (ag-tech), operational efficiency, and commitment to sustainable innovation.
Confident Investing Starts Here:
- Easily unpack a company's performance with TipRanks' new KPI Data for smart investment decisions
- Receive undervalued, market resilient stocks right to your inbox with TipRanks' Smart Value Newsletter
For now, I rate Deere as a Hold as the stock appropriately reflects both current pressures and future potential. The coming years will be a critical test of management’s ability to navigate the downturn, preserving cash, maintaining margins, and further strengthening its competitive edge in the rapidly advancing ag-tech space.
Introducing John Deere
Deere & Company, recognized worldwide through its iconic John Deere brand, is a leading manufacturer of agricultural, construction, and forestry equipment. Its product lineup ranges from tractors and combine harvesters to mowers, compact machinery, and advanced digital tools that enhance efficiency on farms and construction sites. The company’s operations are organized into three core segments:
- Production & Precision Agriculture: large-scale growers with high-tech equipment and automation.
- Small Agriculture & Turf: mid-size farms and residential land care.
- Construction & Forestry: infrastructure, road building, and forestry markets utilizing heavy-duty machinery.
Beyond equipment sales, Deere offers a range of financial services, including leasing, loans, and insurance, which help customers finance significant capital investments. The company’s strong brand, extensive dealer network, and deep-rooted customer relationships give it meaningful pricing power and a steady stream of aftermarket revenue. These advantages are especially valuable during economic downturns and play a key role in Deere’s strategic shift toward higher-margin, technology-driven solutions.
Revenues Decline, But Margins Hold Strong
Deere’s second quarter of fiscal 2025 exposed the strain of a cooling cycle across its core markets. Net sales and revenues dropped 16% year-over-year to $12.8 billion. Equipment operations net sales fell 18% to $11.17 billion, driven by sharp declines across all segments:
- Production & Precision Ag: down 21% to $5.23 billion
- Small Ag & Turf: down 6% to $2.9 billion
- Construction & Forestry: down 23% to $2.9 billion
Despite this top-line softness, Deere displayed commendable operational discipline. Equipment operating margins remained robust at 18.8%, and net income totaled $1.8 billion, or $6.64 per diluted share. These solid margins highlight Deere’s ability to adjust production schedules and manage cost structures, even in a demand-challenged environment.
But macro pressures remain acute. The company incurred a $100 million impact from tariffs during the quarter, with expectations of a full-year hit exceeding $500 million, which would be a substantial drag on profitability. Regarding earnings per share, DE reported net income of approximately $1.8 billion, which translates to an EPS of $6.64.
DE’s Strategic Direction Requires Market Context
What sets Deere’s strategy apart is not just its disciplined cost management, but its bold commitment to innovation—even in the face of a market downturn. Management has pledged $20 billion over the next decade to bolster advanced U.S. manufacturing, automation, and clean technologies, reinforcing Deere’s long-term edge in precision agriculture.
Early signs are promising. Deere’s Precision Essentials package—which includes sensors, automation hardware, and connectivity tools—received nearly 10,000 orders in the first half of FY2025, already surpassing full-year 2024 totals. This suggests that even in a tighter capital environment, farmers continue to invest in tools that deliver clear value.
Similarly, demand for Deere’s “See & Spray” AI-powered technology, which targets weeds with minimal herbicide use, has exceeded 1,000 new orders, highlighting a growing appetite for solutions that improve efficiency and reduce input costs.
These technology-driven offerings not only position Deere for future growth but also help cushion against margin pressure in commodity-sensitive cycles, supporting a shift toward higher-margin, recurring software revenue.
Still, Deere faces a challenging short-term outlook, with multiple demand headwinds converging:
- High interest rates continue to hinder spending in agriculture, particularly for large-scale equipment.
- Tariff impacts, especially those targeting components and exports, are mounting.
- Global economic uncertainty, including softness in the construction sector, is eroding customer confidence and slowing equipment orders.
- Government programs are offering limited relief to growers, adding to the cash flow pressures facing Deere’s customer base.
As a result, management anticipates U.S. and Canadian Large Ag unit sales to decline by roughly 30% year-over-year—a stark indication that the cyclical downturn is well underway.
Comparing the Bullish and Bearish Cases for DE Stock
The bullish case for Deere centers on its long-term evolution from a traditional machinery manufacturer to a tech-driven productivity platform. The growing adoption of precision agriculture solutions—especially among large-scale growers—demonstrates that demand for smarter, data-informed equipment remains strong, even in weaker commodity cycles.
Several factors support this optimistic outlook:
- Best-in-class margins despite revenue declines, a testament to cost discipline.
- Early-stage monetization of digital offerings, with clear scalability potential.
- High brand loyalty and global market share in large agriculture and forestry.
- Underappreciated growth in emerging markets, such as Brazil, where Deere’s footprint is expanding faster than many analysts anticipated.
If macroeconomic conditions improve heading into 2026, Deere is well-positioned to reaccelerate earnings, with potentially greater operating leverage than in prior cycles. However, key risks could weigh on performance in the near term:
- Tariff impacts are real and rising. This burden directly cuts into earnings and reduces pricing flexibility.
- Farmer sentiment is deteriorating, with many postponing big-ticket machinery purchases.
- Interest rates remain stubbornly high, further inhibiting the cash flow and financing capacity of Deere’s customers.
- Deere’s debt-to-equity ratio of 0.96 exceeds that of many of its industrial peers, raising questions about the company’s capital allocation flexibility if interest rates rise further.
- Free cash flow, while still healthy, is trending downward, a red flag for investors focused on dividends or buybacks.
In short, while Deere’s long-term fundamentals remain solid, these near-term challenges could cap upside potential over the next 6 to 12 months.
DE Investor Outlook Remains Mixed Amid Peer Comparison
At a trailing P/E of 24.7, Deere trades at a clear premium to the broader industrials sector. That said, Deere’s return on equity of 23.3% is well above the sector average of 5.4%, which supports a higher multiple, as does its growing tech stack.
On a forward-looking basis, Deere forecasts FY2025 net income between $4.75 billion and $5.5 billion, and operating cash flow of $4.5–5.5 billion. With capital expenditures (capex) of around $1.4 billion, this implies strong free cash flow, even in a down year.
A DCF model, assuming a WACC of 9%, terminal growth of 2.5%, and mid-cycle FCF of approximately $4 billion, would imply a fair value of around $540–$560, which is reasonably aligned with analyst consensus.
Is Deere & Co. Stock a Buy, Sell, or Hold?
Wall Street remains divided on DE stock, resulting in a Moderate Buy consensus with an average stock price target of $554.13. This reflects confidence in Deere’s technological edge and improvements in its structural margin. However, the subdued near-term outlook tempers broader enthusiasm and suggests limited upside for investors in the short run.
DE Bulls Should Wait for the Cycle to Turn
Taking a step back, Deere & Company is far from a broken story—but it’s clearly subject to cyclical demand pressures. The latest results, while solid on margins, highlight the limits of even strong operational execution in the face of softening demand. That said, Deere’s bold investments in automation, digital platforms, and sustainability are exactly the kind of forward-looking moves long-term investors should welcome during a downturn.
While the near-term outlook remains uncertain—pressured by tariffs, weakening farm sentiment, and global instability—Deere’s strong brand, loyal customer base, and strategic focus position it well for a rebound when the cycle turns.
For now, I maintain a Hold rating. Patient investors may find a more compelling entry point if the stock pulls back to the $480–$500 range. Until then, Deere is a name to watch closely as its tech-driven transformation continues to gain traction.
