Deere & Company (DE)

Revenue declined ~12% in FY2025 as the agricultural equipment cycle turned down — lower crop prices reduced farmer equipment purchases. This is worse than AGCO (~-8%) and CNH Industrial (~-10%), reflecting Deere's larger exposure to the large ag market which is most cyclically sensitive. However, parts and service revenue remained resilient at +3%, providing a counter-cyclical buffer.

Deere holds ~60% share of the large ag equipment market in North America and ~30% globally. This dominant position has been stable-to-gaining over the past decade as precision agriculture technology differentiates John Deere from AGCO, CNH, and Kubota. Construction equipment share (~15% globally) is smaller but growing through compact equipment and technology features. The technology leadership is widening the moat during the downturn as competitors cut R&D.

Deere has exceptional pricing power driven by brand loyalty, dealer network density, and technology lock-in. Even in the current downturn, price realization has been positive — farmers will pay premium for John Deere reliability and technology. The precision ag subscription model (operations center, See & Spray) adds recurring software revenue on top of equipment pricing. Residual values remain strong, supporting the total cost of ownership argument.

Deere is the technology leader in agriculture — autonomous tractors, See & Spray selective herbicide application (reducing chemical use 60-70%), ExactApply variable rate seeding, and the Operations Center data platform. These are genuinely transformative technologies for farming. However, farmer adoption is gradual and the revenue impact of precision ag technology is still early. The company also faces right-to-repair legislative headwinds that could limit technology lock-in.

Farmers who invest in John Deere's precision agriculture ecosystem — GPS guidance, Operations Center data history, variable rate prescriptions — face enormous switching costs. Years of field data, implements calibrated to Deere platforms, and dealer relationships create deep lock-in. Physical compatibility of implements and tractors adds another switching barrier. The technology ecosystem is deliberately designed to increase retention.

The John Deere Operations Center creates modest network effects — more acres on the platform generate better agronomic insights, which improve recommendations for all users. The dealer network's geographic density creates a service availability advantage that compounds with scale. But these are data and scale advantages rather than pure network effects.

Deere holds 10,000+ patents globally in precision agriculture, autonomous systems, and equipment design. The regulatory approval process for autonomous farm equipment is emerging but will favor established manufacturers with safety data. Right-to-repair legislation is a risk that could erode the technology moat by opening up Deere's software and diagnostic systems. Agricultural emissions regulations also favor Deere's R&D scale.

Manufacturing farm equipment requires massive capital investment in foundries, assembly plants, and supply chains that new entrants cannot easily replicate. Deere's $5B+ in annual R&D and capex creates a compounding technology advantage. John Deere Financial provides captive financing that funds equipment purchases and generates NII. Free cash flow generation of $6B+ (at cycle peak) funds investment through cycles.

EPS estimates for FY2026 have been revised down ~15% as the ag equipment cycle deteriorated worse than initially expected. Consensus of ~$22 reflects trough-level earnings. However, the direction of revisions is stabilizing and could turn positive in H2 2026 if crop prices recover. The market is pricing cyclical trough, which historically has been a favorable entry point for Deere.

The long-term narrative is exceptionally positive — Deere as an ag-tech company, autonomous farming, AI-driven crop optimization. This narrative persists even during the downturn, supporting the stock's premium multiple versus historical norms. Short-term headlines about farm income pressure and dealer inventory buildup create noise. The right-to-repair debate generates some negative coverage among farming communities.

CEO John May has continued the technology transformation initiated by his predecessor. Capital allocation through the cycle has been excellent — reducing production quickly when demand slows, maintaining R&D investment, and returning excess cash via buybacks. The smart industrial strategy targeting 2030 technology milestones is credible and well-communicated. Deere's management is among the best in industrials.