As part of our ongoing series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the world’s leading industrial equipment manufacturers, Deere & Company (DE).
Profile
Deere & Company (DE) is a global leader in agricultural, construction, and forestry machinery. Known for its iconic green and yellow equipment, Deere operates through a strong dealer network and benefits from long-term tailwinds in precision agriculture and infrastructure investment. The company’s technological edge — through initiatives like autonomous tractors and smart farming solutions — positions it for continued growth. With robust free cash flow generation and a steady focus on capital efficiency, Deere is a compelling player in the industrials space.
DCF Analysis:
Inputs
Discount Rate: 8.0%
Terminal Growth Rate: 2.5%
WACC: 7.5%
Forecasted Free Cash Flows (FCFs) in billions:
Year 2025 – FCF: 6.0, Present Value: 5.55
Year 2026 – FCF: 6.4, Present Value: 5.52
Year 2027 – FCF: 6.8, Present Value: 5.49
Year 2028 – FCF: 7.2, Present Value: 5.46
Year 2029 – FCF: 7.6, Present Value: 5.43
Total Present Value of FCFs = 27.45 billion
Terminal Value Calculation:
Using the perpetuity growth model, Terminal Value = (7.6 × 1.025) / (0.08 – 0.025) = 7.79 / 0.055 = 141.64 billion.
Present Value of Terminal Value = 141.64 / (1.08^5) = 141.64 / 1.4693 = 96.39 billion
Enterprise Value Calculation:
Enterprise Value = PV of FCFs + PV of Terminal Value = 27.45 + 96.39 = 123.84 billion
Net Debt Calculation:
Net Debt = Debt – Cash = 65,463 billion – 8,478 billion = 56.985 billion
Equity Value Calculation:
Equity Value = Enterprise Value – Net Debt = 123.84 – 56.985 = 66.86 billion
Per-Share DCF Value:
Shares Outstanding = 270.83 million
Per-Share DCF Value = 66.86 / 0.27083 = $246.91
Conclusion:
DCF Value: $246.91
Current Price: $520.84
Margin of Safety: -52.6%
Based on our DCF valuation, Deere & Company appears to be trading significantly above its intrinsic value. The estimated DCF value of $246.91 is well below the current share price of $520.84, implying a negative margin of safety of -52.6%.
While Deere’s long-term fundamentals remain attractive — particularly in precision agriculture and equipment automation — current market pricing may be baking in aggressive assumptions about growth and profitability that warrant closer investor scrutiny.
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