John Deere (NYSE: DE) faces the best and both of worlds in today’s economy.
Demand for Deere’s products; farm tractors, is high and growing. NBC News claims a 2009 John Deere tractor sold for $143,000 at a Strawberry Point, Iowa, auction. The same tractor sold for $109,000 when somebody bought it new.
Moreover, used farm equipment prices have risen by 30% to 50% in the last two years, auctioneer Joel Everett tells NBC News. Hence, Deere & Company (NYSE: DE) faces a bull market for its products.
Will the Strike Hurt John Deere?
On the other hand, a surprise strike by 10,000 workers is disrupting Deere’s operations. The United Auto Workers (UAW) members rejected a contract offer and walked out on 13 October 2021. The Deere workers were still out on 20 October 2021.
Striking workers hope to reclaim organized labor’s lost bargaining power by shutting Deere down when business is great, Axios observes. The last strike at Deere & Co (DE) in 1986 lasted six months, Axios reports. The Deere strike is the latest in a wave of labor actions disrupting the economy, The Intercept reports.
Tellingly, elected officials are trying to end the strike. Governor Kim Reynolds (R-Iowa) is trying to negotiate an end to the strike, The Des Moines Register reports. The strike affects Deere plants in Ankeny, Davenport, Dubuque, Ottumwa, and Waterloo, Iowa. Reynolds is worried because 6,700 Iowa residents are on strike.
The workers rejected a collective bargaining proposal that offered a 5% to 6% raise, and increased monthly retirement plans. Deere & Co workers reject the proposal because it preserves a two-tier wage and retirement system for employees who started after 1997. Workers also want company health insurance to continue after retirement.
The UAW and Deere & Co management resumed negotiations on 18 October 2021, The Des Moines Register claims. The media reported no progress in the Deere strike on 22 October 2022.
Is Deere & Co (DE) Making Money?
One reason for the strike is Deere & Co’s recent success. John Deere (DE) reported a quarterly gross profit of $3.643 billion and a quarterly operating income of $2.15 billion on 31 July 2021.
Notably, Stockrow estimates Deere’s revenues grew by 29.29% in the quarter on 31 July 2021. John Deere reported quarterly revenues of $11.529 billion on 31 July 2021. The quarterly revenues grew from $8.917 billion on 31 July 2020.
Furthermore, the quarterly operating income grew from $1.27 billion on 31 July 2020 and the quarterly gross profit grew from $2.751 billion on 31 July 2020. Thus, Deere & Co is making more money, which is inspiring the strike.
How Much Cash is John Deere Generating?
Deere & Company (NYSE: DE) reported a quarterly operating cash flow of $2.528 billion on 31 July 2021.
In comparison, Deere reported a quarterly ending cash flow of $7.064 billion on 31 January, 2021. However, the quarterly ending cash flow fell to $358 million on 31 July 2021.
Thus, John Deere can generate enormous amounts of cash. It can also keep a lot of that cash. For example, Deere had $8.207 billion in cash and short-term investments on 31 July 2021. The cash and short-term investments fell from $8.83 billion on 31 July 2020.
Moreover, Deere finished the first pandemic year with less debt. The total debt fell from $48.791 billion on 31 July 2020 to $48.265 billion on 31 July 2021. John Deere is paying its debts. The company reported a quarterly financing cash flow of -$410 million on 31 July 2021. The quarterly financing cash flow rose from -$2.619 billion on 31 July 2020.
Is John Deere a Value Investment?
Therefore, I consider Deere (NYSE: DE) a financially healthy company, but is it a value investment?
I think Mr. Market overpriced Deere & Company (DE) at $340.71 on 22 October 2021. Mr. Market paid $238.87 for DE on 20 October 2020. Yet, I think Deere has some value characteristics because it makes money, has lots of cash, and operates in an unsexy market that is experiencing growing demand.
Deere is an excellent dividend stock, however. It will pay a $1.05 quarterly dividend on 8 November 2021. That dividend will grow by 15￠ from 90￠on 26 May 2021. They have scheduled two further $1.05 Deere dividends for 2022.
Overall, Deere & Company (DE) shares offered a forward dividend of $4.20 and a 1.22% dividend yield on 20 October 2021. In the final analysis, I consider Deere a terrific dividend stock Mr. Market overprices. Investors need to watch Deere because this company will be a value investment if they settle the strike.