EUR 850.00 For Business Accounts Only

Morningstar | Continued Farmer Brand Loyalty Benefits Deere

Our recent evaluation of Deere supports our wide moat rating. Deere has shown an ability to earn profits throughout various economic and agricultural cycles. The strength of its brand, the lucrative parts business, and its financing arm all contribute to this robustness.

In our recent conversations with Deere equipment owners, three themes emerged: 1) brand loyalty is strong; 2) reliability of Deere equipment is a significant selling point; and 3) it is crucial that equipment is easily serviceable.

Farmers also expressed a desire to stick with what they know as this simplifies operation and maintenance. Dealer relationships were also shown to be important as these are established over decades. Several farmers mentioned that they grew up with Deere and plan to stick with the brand.

Deere’s construction equipment strategy also appears on track. In late 2017, Deere acquired road-building equipment maker Wirtgen, which will strengthen its position in the global infrastructure build-out. All indicators suggest this acquisition is a good fit as it places Deere’s somewhat small (compared with competitor Caterpillar) construction equipment business in a stronger position. Global trends such as urbanization support this conclusion.

We envision that most agricultural equipment will become more technologically sophisticated. Deere’s precision agriculture solutions help improve productivity and increase yields. This technology encompasses sensors and software in the equipment, desktop solutions, and even cloud-based data storage. Our conversations with farmers suggest they are bullish about the benefits of this technology but are not fully utilizing all that Deere has to offer.

Farming continues to be a competitive business. As the growing sophistication of the technology increases, we believe two benefits to Deere will emerge: 1) there will be more products to sell, and 2) switching costs will be increased.

We believe Deere is well positioned to benefit from trends in the global agriculture industry. The United Nations estimates that world population will grow approximately 1.0% annually until 2030 and global crop production will increase 1.4% annually over the same period. Much of the development in emerging economies will increase through mechanization and other advances in crop production.