DEERE & CO (DE) stock intrinsic value fair value estimate & owner earnings analysis

Deere is the world's largest maker of farm machinery and also sells construction, forestry, road-building (Wirtgen) and turf equipment through an exclusive dealer network, backed by a high-margin parts business, a precision-farming technology lead and a captive finance arm, John Deere Financial. We value the equipment business as the owner of the company, counting the finance arm only for the dividends it actually sends up to the parent, and treating the finance arm's roughly $55 billion of borrowings as the raw material of a lender rather than as debt of the equipment business. Cash generated by the equipment business, after deducting stock compensation, the swings in receivables, inventories and payables, and only the part of capital spending needed to stay in business, came to about $6.15 per share in 2016, $5.50 in 2017, $8.41 in 2018, $8.21 in 2019, $8.92 in 2020, $17.58 in 2021, $18.73 in 2022, a peak $29.74 in 2023, $20.61 in 2024 and $16.74 in 2025. Adding back the interest the equipment business pays its lenders, the cash the business produces for owners and lenders together was $14.71 per share in 2025 after setting aside a one-time excess of about $924 million in dividends from the finance arm ($1,368 million in 2025 against a typical $200 million to $550 million). We used the eight years since the 2018 Wirtgen acquisition changed the mix of the business, a window that contains the 2018-2019 expansion, the 2020 shutdown, the 2021-2023 boom and the 2024-2025 downturn, so no single phase of the cycle sets the level. The middle of that range is about $16.7 per share; we then lowered it to about $15.0 because Deere reports roughly $600 million of direct tariff cost in 2025 on imported parts and products from Europe, Mexico, India and Japan and says it expects tariffs to keep weighing on 2026. Last year's cash generation fell 18% from 2024; our first forecast year (about $14.7) is flat against the normalized 2025 level, and below reported 2025, so no recovery is assumed beyond what the filings already show. Revenue for the first nine months of fiscal 2026 is up about 7% from a year earlier ($35.6 billion), with each of the last two quarters up about 5% and third-quarter net income up about 7%, which supports the level but is not treated as a new trend; cash from operations for the nine months is about 6% lower than last year. This corrects our earlier view that 2026 was a further down year: sales are stabilizing and the earlier numbers are on a different basis and are not comparable. The base case has the business earning about $14.7 per share next year, $15.0 the year after, then growing 2% a year through year ten, and holding at about $17.6 thereafter. What we credit is limited: the installed base of machines that must be serviced and replaced, the dealer network and the parts business, and a modest rate of price-driven growth well below the roughly 8% a year at which cash generation has risen from the 2016-2017 trough to the 2025 trough. We left out market expansion, share gains, new technology products and margin expansion because they have not yet happened. On that story the business is worth about $281 per share. It owes about $5.6 billion net, or about $21 per share: $9.2 billion of equipment-operations borrowings ($8.8 billion long-term, with interest expense of $372 million, about 4% of the debt, and $0.4 billion short-term) less about $3.6 billion of the $6.6 billion of cash and securities that is surplus to operating needs, as of the November 2025 year-end balance sheet. Equity value is about $260 per share. The bear case builds in a full farm-equipment downturn on top of today's weakness. The 2013-2016 cycle cut Deere's net income by about half (from $3.2 billion in 2014 to $1.5 billion in 2016) and revenue by about a quarter, and the current decline from the 2023 peak is already about the same depth, so the bear case assumes the trough lasts three more years at about $9.5 per share (finance-arm dividends suspended, tariffs not recovered), a partial recovery to about $11 for three years, a second full-depth downturn to about $5.5 for three years, and a lasting level of about $11, a quarter below our normal level, with half of the 2021-2023 pricing and mix gains lost. In that story the business is worth about $169 per share and owes about $21, leaving about $148. Even at the low point cash from the business (about $1.5 billion a year) covers the $372 million interest bill several times over, and the equipment business holds $6.6 billion of cash and securities against $9.2 billion of borrowings, so a refinancing squeeze is not part of this case. The bull case lets the business's own levers work: the pricing power shown in 2021-2022 holds against tariffs, so cash generation recovers to about $16.0 next year and $18.3 the year after, grows 3% a year to year ten (about $23.2) and stays there. The business is worth about $362 per share, less about $21 owed, leaving about $341. A further tariff reversal or sharper farm-income recovery is not counted. How we reached the margin-of-safety price: we are reasonably, not highly, sure of the earnings level because Deere's cash flow has ranged from $6 to $31 per share in ten years, and moving the normal level by a quarter changes the value by roughly a quarter. The worst plausible outcome is a long farm downturn combined with tariffs and a pause in finance-arm dividends; the equipment business would survive that, because its borrowings are modest against its cash and its earning power does not depend on one customer or a regulator, but earnings could be roughly half of today's for several years, and a credit problem inside the finance arm (which we value only through its dividends) is an outcome no case fully prices. If we are wrong about the normal level (say $12 instead of $15) and also about the business holding its earning power after year ten, the shares would be worth in the range of $150 to $200 rather than $260. The price assumes a four-to-five-year holding period for a farm cycle to turn; during that period Deere pays a dividend of $6.48 per share ($1.76 billion in 2025) and has repurchased shares, cutting the share count from 327 million in 2018 to 271 million in 2025. From $140 the bear case still implies a positive return, and a good one if the business simply performs like the median of its past eight years, which is why the margin-of-safety price is $140, not a fraction of any single case. Things we could not fully reconcile: the finance arm's earnings are only partly distributed and we do not credit the retained portion; the equipment business's interest income on its large cash balance remains inside our cash-flow figures and is mildly double counted with the surplus cash we deduct from debt, which we judged immaterial and left in as a margin of conservatism elsewhere.