Is John Deere Making Money?

The iconic tractor John Deere; or Deere & Company (NYSE: DE), could be a value investment.

For instance, John Deere reported a quarterly gross profit of $2.554 billion on 31 January 2020. Moreover, John Deere reported an operating income of $569 million and a net income of $518 million on the same day.

Importantly, Deere & Company reported quarterly revenues of $7.631 billion on 31 January 2020. However, John Deere’s revenues are falling.

John Deere’s Revenues are falling

For instance, Deere & Company’s quarterly revenues fell from $9.895 billion on 31 October 2019 to $7.631 billion three months later. Moreover, John Deere’s quarterly revenues fell from $7.984 billion on January 31, 2019.

Notably, Stockrow estimates Deere & Company’s revenue growth rate fell by 4.42% in the quarter ending on 31 January 2020. Additionally, Deere had a revenue growth rate of 5.09% on 31 October 2019.

I think those numbers show the Trump tariffs are affecting farm revenues and Deere’s sales. Notably, the number of family farm bankruptcies rose by 20% in 2019, the Farm Bureau estimates.

America’s Farm Crisis

Specifically, 595 farm families filed for Chapter 12 bankruptcy in 2019, up from around 495 in 2019. Additionally, there were over 5,000 Chapter 12 farm bankruptcies in the decade between 2009 and 2019.

Overall, U.S. farm income fell by 33% in 2019, the Farm Bureau estimates. Consequently, farmers have less money to spend on tractors. Therefore, John Deere’s customers have less money.

Therefore, America is facing a farm crisis that could threaten Deere & Company’s revenues. Hence, John Deere will need to develop new markets including more imports and construction.

John Deere Explores New Markets

Importantly, John Deere (NYSE: DE) is exploring new markets. First, Deere is exploring the possibility of electric tractors. Second, Deere & Company is developing autonomous tractors and tractors run by artificial intelligence (AI).

In particular, Deere is testing a driverless electric tractor they call the Joker, Future Farming reports. They are developing the Joker at John Deere’s European Technology Innovation Center in Kaiserslautern, Germany.

Thus, Deere & Company (NYSE: DE) is developing technology suited to large agribusiness. Agribusiness is a growing industry in the United States. For example, KVCN, LLC; owned by real estate billionaire Sheldon Solow and his son Stefan Soloviev , owns 81,000 acres of farmland in Colorado,  18,214 acres of farmland in Kansas, and 252,450 of farmland in New Mexico, The Vail Daily reports.

In fact, KVCN has so much money it could afford to spend $288 million buying, rebuilding, and reopening the abandoned Tennessee Pass rail line in Colorado, The Vail Daily reports. The KVCN subsidiary plans to use the Tennessee Pass Line between Canon City and Vail to ship agricultural goods to the Union Pacific’s (NYSE: UNP) transcontinental rail line. The hope is that the UP will ship the agricultural goods to the ports for shipment to Asia.

John Deere’s growing Market and Bright Future

I think KVCN and Deere & Company hope to cash in on growing populations and rising incomes in China and India. To elaborate, Solow and his son think there will be massive new markets for food in Asia.

For instance, Worldometer estimates India had a population of 1.38 billion in March 2020. Meanwhile Worldometer estimates the People’s Republic of China had population of 1.439 billion in March 2020. In other words both nations have a lot of mouths to feed.

Moreover, Standard Chartered Bank estimates China and India will be the world’s two largest economies by 2030, MarketWatch claims.  To elaborate, The Visual Capitalist projects China will have gross domestic product (GDP) of $64.2 trillion and India will have a GDP of $46.3 trillion in 2030. In contrast, Visual Capitalist predicts the United States will have a $31 trillion GDP in 2030.

Thus, Solow & son hope to tap a $110.5 trillion market with 2.819 billion cusomters their farmland and rail line. I think Deere & Company (NYSE: DE) could tap that market by selling autonomous tractors to KVCN.

What Value Does John Deere Have?

Currently, John Deere (NYSE: DE) has a lot of value. For instance, Deere had $4.211 billion in cash and short-term investments and total assets of $72.821 billion on 31 January 2020.

Moreover, Deere & Company operated factories in over countries including the United States, China, Brazil, Argentina, Canada, India, Russia, Australia, and the European Union.* Thus, Deere manufactures farm machinery in the world’s most important agricultural countries.

In addition to agriculture, John Deere manufactures construction, forestry, lawn & garden military, and landscaping equipment. Consequently, I think Deere is in a position to grow with the world’s fastest growing economies.

Hence, I consider John Deere a value investment at the $111.63 share price Mr. Market gave DE on 20 March 2020. Moreover, John Deere manufactures the machines that harvest our food.

Therefore, I think there will be a constant and growing demand for Deere’s products around the world. Hence, I believe John Deere is a long-term growth stock that could be recession proof.

Is John Deere a Good Dividend Stock?

I consider Deere & Company (NYSE: DE) a great dividend stock because it will pay a 76₵ dividend on 30 March 2020.

Overall, John Deere gave shareholders a dividend yield of 2.53%, an annualized payout of $3.04, and a payout ratio of 31.74% on 19 March 2020. Dividend.com credits Deere with two years of revenue growth.

If you are seeking a good dividend stock with strong value characteristics, Deere & Company is worth investigating. I think this tractor maker could grow and make money for many years to come.

*https://www.deere.com/assets/pdfs/common/our-company/about/WWmap_2018.pdf