Your Grandpa’s Tractor Just Got a Software Update

John Deere

In 1837, John Deere (now Deere and Company) Founded John Deere. Nice. John Deere was a blacksmith who revolutionized farming with the invention of the steel plow. Over the decades, John Deere has grown into the most recognized brand in heavy machinery, making it a global leader in manufacturing agriculture, construction, and forestry equipment. John Deere is based out of Moline, Illinois but operates in more than 100 countries, serving farmers, construction firms, and forestry businesses worldwide. 

John Deere operates in many segments, but its core business is in production and precision agriculture, small agriculture and turf, and construction and forestry. John Deere produces large farming equipment, precision technology, and digital agriculture solutions for its production and agriculture segment. Its agriculture and turf businesses have become major suppliers of compact tractors, utility vehicles, and tuft care equipment. They also supply the construction and forestry business with heavy machinery for infrastructure and road building. John Deere in recent years has begun to invest heavily into technology-first solutions that will enable them to integrate AI, automation, and machine learning that will enhance productivity and efficiency. 

John Deere has consistently evolved to remain at the forefront of agricultural and construction innovation. In recent years they have begun to expand into autonomous machinery, digital transformation with AI and machine learning, global expansion of precision technology, and continue its financial discipline. John Deere has begun to leverage real-time data, automation, and AI-driven analytics to optimize farming operations. They have recently unveiled the autonomous 9RX Tractor and advanced precision ag solutions as they began to expand into autonomous machinery.  John Deere has made significant investments in connecting farming solutions, boosting its ability to generate recurring revenues. 

John Deere has continuously been focused on cost efficiency, capital allocation, and shareholder returns with strong dividend and share repurchase programs. The company is at a pivotal moment in its evolution as they are shifting from traditional equipment to a high tech, data driven ecosystem in agriculture and construction. John Deere has become the most dominant player in precision agriculture and construction equipment, through its industry leadership and brand strength. John Deere has been committed to innovation by investing in robotics and autonomous machines in hopes of creating a long term competitive advantage. They have also recently transitioned to recurring revenue and digital solutions by offering AI-driven farming, and subscription-based models that will strengthen its profitability and margins potential. 

John Deere recently reported its first quarter of 2025 results, twas a rough quarter for the team. The company saw a significant downturn in revenue and profitability, a major decrease in agricultural demand drove this. John Deere's revenue dropped by 30% YoY to $8.5 billion, while its net income dropped by a staggering 50% to $869 million. Its profitability metrics also took a hit due to operational inefficiencies, stemming from weaker pricing power, production inefficiencies, and the need for promotional incentives to clear out high inventories. John Deere’s full-year guide guidance was also significantly lowered for 2025, indicating that the Deere boys expect continued negative headwinds throughout the year.

Although John Deere has taken a significant hit with its earnings, it still states at a premium to its industry peers. John Deere’s PE ratio is currently 16 with its competitors CNH Industrial and AGCO with slightly lower PE ratios of 12. The company’s EV/EBITDA ratio is currently around 12x, which is in line with its historical norms although slightly above industry averages that are around 9x EBITDA. Despite its recent cyclical pressures, the market appears to be pricing in John Deere’s long-term technological moat and premium brand positioning. John Deere also trades at a premium in terms of its price-to-book ratio, signaling to investors that its technology investments will drive earnings growth. While JD remains a premium name future earnings shortcomings could lead to additional pressure on its valuation multiples.  We the bad boys over at Azar Capital Group don’t care about these valuation metric numbers, most of them are nonsense. 

Despite the company’s weak earnings, John Deere has maintained a strong cash flow profile ensuring liquidity for strategic investments. In their most recent earnings report, JD reported an operating cash flow of $895 million, reflecting weaker profitability and higher working capital requirements. JD’s free cash flow also took a major hit declining to $460 million, compared to $1.2 billion in the year prior. John Deere is projecting a full-year operating cash flow of $4.5 billion and $5.5 billion in 2025, which is decent but reflects reduced cash generation from lower sales volumes. John Deere has a big pile of cash hidden under their headquarters of over $6.6 billion in reserves, allowing them to weather its current downturn without needing to jeopardize its long term innovation strategy. 

John Deere operates within the global construction, agricultural, and forestry equipment industry. This market is driven by economic cycles, commodity prices, and infrastructure investments. Over the years John Deere has become the largest and most well-known player in the sector with a dominant presence in North America, Europe, and South America. The industry is going through a massive transformation with automation and digital connectivity reshaping how equipment is used in farming and infrastructure sectors. John Deere has been a leader in the high tech, precision-based solutions that differentiate themselves from traditional manufacturers by integrating AI, automation, and digital tooling into its product lineup. 

John Deere’s growth and revenue are driven by two key product categories including its precision agriculture machinery and construction and compact equipment segments. Its production and precision agriculture segment accounts for almost 50% of JD’s total sales, with its high horsepower tractors, combines, and sprayers that are forming the backbone of modern farming. JD’s recent product releases the 9RX Tractor and See and Spray technology are designed to improve farm efficiency, reduce chemical use, and optimize yields. Its construction and compact equipment segment contributes to 30% of the company's net sales. Including excavators, loaders, motor graders, and forestry machines. This segment is currently under pressure from large brands like Caterpillar and Kamatsu, JD has been heavily investing in its autonomous and electric portfolio in hopes of providing a strong growth tailwind in the long term. 

John Deere faces strong competition from traditional machinery manufacturers and emerging technology focused entrants. The company’s major competitors include CNH Industrial, AGCO Corporation, Caterpillar, and Komatsu. AGCO is a major challenger in the European and South American markets and has been gaining traction from its technology-based products. JD has a leading market share in North America with over 50% in high horsepower tractors and combines with a growing presence in precision technology worldwide. John Deere has been investing heavily to expand its digital services, AI driven farming, and after market solutions to further its position compared to competitors who are slower in adopting high tech solutions. 

Over the past 200 years, John Deere has been able to build multiple competitive advantages that have enabled them to build long term dominance and pricing power. John Deere is known for its quality, reliability, and innovative equipment. Also due to the capital-intensive nature of its business, John Deere is protected from high barriers to entry as developing high-precision farming solutions requires billions in R&D investments. John Deere also operates one of the most comprehensive dealer networks globally, this ensures strong parts availability, service support, and aftermarket upgrades. JD also has a massive R&D budget of $2.3 billion, which is well above its competitors and enables it to innovate continuously. 

John Deere’s growth is driven by its precision agriculture, digital services, sustainability initiative, and traditional equipment sales. Its production and precision segment are the company’s largest revenue driver, with high margins, and has become a critical tool for farmers. John Deere’s tools offer integrated real-time data analytics, predictive maintenance, and yield optimization services. John Deere has also invested in expanding its product line to alternative power solutions, including electric and hydrogen products. The company is focusing on customization solutions for different farm sizes, segmenting products based on crop type and digital readiness allowing them to tap into underserved markets with tailormade solutions. 

John Deere has historically relied on strategic acquisitions and partnerships to expand its technological capabilities and market presence. In 2022 JD acquired Kreisel Electric, a battery tech company. This acquisition positions John Deere for continued product expansion in the electrification of its equipment. In 2021 JD Acquired Bear Flag Robotics for $250 million, to enhance the company's autonomous farming capabilities. They also acquired Wirtgen Group in 2017 for $5.2 billion, this acquisition significantly expanded JDs roadbuilding and infrastructure machinery portfolio making them a top-tier competitor in construction. In the future, JD may continue to acquire AI-driven farming, autonomous machinery, and sustainable energy to deepen its technological moat. John Deere could also form strategic partnerships with agriculture and biotech firms that could enhance its end-to-end farming ecosystem. 

Despite its current downturn, John Deere is well-positioned for long-term growth due to its deep pockets for continued AI and automation investments, their aftermarket and subscription-based revenues, and its global supply chain presence. John Deere has been shifting towards higher-margin digital services, by offering data analytics, predictive maintenance, and autonomous upgrades to their product lines. JD has also begun to streamline its production processes and supply chains to reduce logistics costs and increase resilience. Autonomous tractors, AI tools, and smart sprayers are expected to see accelerated adoption as labor shortages grow and farmers begin to seek out greater efficiency and crop output. 

John Deere’s TAM and TAP are constantly rising as the digital industry begins to transform its product lines with AI and autonomous tools. The global agricultural equipment market is projected to reach over $250 billion by 2030 with precision ag revenues expected to surpass $20 billion annually. With its global presence, JD is well-positioned to eat up this market as farmers and governments begin to invest in tools of the future. In emerging markets, JD has significant room for expansion for expansion especially in South America, Africa, and parts of Asia where agriculture is still dominated by low-tech equipment. 

With a global presence, John Deere’s operations are highly complex due to supply chain disruptions, technology-driven complexities, and talent-related risks. One of the company;’s biggest risks lies in its supply chain, with disruptions, geopolitical tensions, and rising raw materials costs having major impacts on the company’s bottom line. Additionally, tariffs on steel and aluminum could increase production costs causing margin suppression unless price increases are passed along to customers. Another major risk is the company’s integration of AI, autonomy, and precision technology into traditional farming tools could lead to cybersecurity risks. JD must invest in cybersecurity measures to ensure that its smart equipment remains competitive, secure, and user-friendly.

John Deere navigates multiple highly regulated industries, with market demand shaped by macroeconomic conditions, fluctuating commodity prices, and evolving government policies. The ag sector which contributes to a large portion of John Deere’s revenue, is highly dependent on farm income, crop prices, and weather conditions. With commodity prices and farm profitability prices declining, demand for new equipment has significantly dropped. This has led to high dealer inventories, if this trend continues JD may be forced to cut production levels. Also, environmental regulations related to emissions, and fuel efficiency standards could require John Deere to accelerate its investments in electrification this could strain its R&D budget and affect short-term profitability. 

John Deere’s valuation is highly sensitive to fluctuations in earnings and macroeconomic conditions. John Deere trades at a premium compared to its competitors, implying investor confidence in the company’s rebound in agricultural and construction equipment demand. However, if JD equipment demand continues to fall this could lead to downward valuation pressure and lead to further compression in valuation multiples. As interest rates remain elevated, the cost of financing new equipment increases, which could prolong the industry slowdown and put additional pressure on John Deere’s valuation.

John Deere is the undisputed leader in precision agriculture and construction equipment and is now leveraging AI, automation, and connectives to drive the future of farming and infrastructure. Despite the company's recent short-term headwinds that include declining demand and high dealer inventories, JD is committed to innovation that positions them for long term success. John Deere is actively investing in growth drivers like AI powered machinery, electrification, and subscription-based precision ag solutions. The shift towards smart and connected machinery is not just a fad but is the future of farming and infrastructure. JD has invested billions into cutting-edge tools, a dominant dealer network, and deep customer loyalty, John Deere’s is well for long-term growth 

The bad boys over at Azar Capital Group will be giving John Deere a ‘BUY’ rating, we believe that JD is trading at a discount and will be able to temper the short-term storm.  A decline in interest rates will boost farmers' financial ability which will help fuel a new wave of equipment demand. The next generation of precision farming solutions and autonomous tractors will create new recurring revenue forms that will turn JD into a software and hardware play. John Deere's digital and subscription expansion will drive high margins and recurring revenues that will move to closer to a tech platform business rather than just a machinery manufacturer. 

Disclosure

This analysis is for informational purposes only and should not be considered financial advice. Investors are encouraged to perform their own due diligence or consult with a financial advisor before making investment decisions.