Deere & Company, commonly known as John Deere, is a leading manufacturer of agricultural, construction, and forestry equipment, headquartered in Moline, Illinois. The company has a strong brand and a global presence, with operations in more than 30 countries. In this investment thesis, we will outline a case for investing in Deere based on current macroeconomic tailwinds, valuation, and company's past execution.

Macroeconomic and Geopolitical Conditions:

Deere is poised to benefit from several macroeconomic and geopolitical factors. First, the global population is expected to grow from 7.9 billion people in 2021 to 9.7 billion people in 2050 (United Nations). However, the Russia-Ukraine war has negatively affected food production for the world (for example, Ukraine and Russia are world's 7th and 4th largest producer of wheat, respectively). As a result, the already-unbalanced supply-demand dynamic for food and agricultural products have worsened, which only increase the need for farming equipments. 

In the US, the Biden administration's focus on infrastructure spending and the implementation of the Green New Deal is expected to have a significant impact on Deere. As part of the administration's infrastructure plan, the government has committed to investing in a wide range of infrastructure projects, including highways, bridges, railways, and ports. This investment creates a significant demand for construction equipment, which Deere manufactures and sells. Furthermore, the plan includes significant investment in renewable energy and clean transportation infrastructure, which will likely increase demand for Deere's products, such as electric vehicles and equipment used in the production of biofuels.

Additionally, the administration's agenda is a shift towards a more sustainable economy, which includes investments in clean energy and infrastructure, as well as efforts to reduce greenhouse gas emissions. This shift is expected to increase demand for renewable energy and alternative fuel sources, as well as technologies that improve the efficiency of energy production and consumption. As a manufacturer of agricultural equipment, Deere is well-positioned to benefit from the increased demand for biofuels and other renewable energy sources. The company has also been investing in technologies to improve the efficiency and sustainability of its products, such as precision agriculture, which uses data analytics and automation to optimize crop yields and reduce waste.

Valuation:

Deere's current valuation is attractive for long-term and value investors. Based on 2023's expected earnings of $29.18/share and current price of $433/share, the stock trades at an incredibly-low 14.8 times on Price-to-Earnings ratio. This is very attractive given the earnings are expected to grow an incredible 25% compared to 2021. Furthermore, the 14.8x is below Deere's own 10-year average forward P/E (16x).  

Company's Execution:

Deere's management has a strong track record of execution. In the past five years, the company has consistently grown revenue and earnings per share, with revenue increasing at a compound annual growth rate (CAGR) of 4.4% and earnings per share increasing at a CAGR of 11.4%. Additionally, the company has improved its operating margin from 7.4% in 2016 to 11.1% in 2021, demonstrating its ability to increase efficiency and profitability. Management's focus on innovation and digitalization has also helped to drive growth, with the company investing heavily in technology and data analytics to improve its products and services.

Bottom Line:

In conclusion, Deere is a well-established company with a strong brand and a global presence. The company is well-positioned to benefit from macroeconomic and geopolitical conditions, including population growth, infrastructure spending, and diversification of revenue streams. Additionally, the stock is undervalued relative to its historical norms and offers an attractive dividend yield. Management has a strong track record of execution and has demonstrated a commitment to innovation and digitalization. Therefore, we believe Deere is a strong investment opportunity for long-term investors looking for exposure to the agriculture, construction, and forestry industries.