Deere is raking in free cash flow to fuel stock buybacks and dividend increases.
Shares of Deere & Company (NYSE: DE) hit an all-time high on May 16 after management reported second-quarter fiscal 2025 results (for the period ended April 27). Since then, the dividend stock has come down slightly from that high in lockstep with a broader market pullback.
But shares of Deere, which manufactures agricultural equipment and other heavy-duty machinery, are still up 235% during the past five years compared to a less than 100% gain in the S&P 500 (SNPINDEX: ^GSPC).
Buying stocks near all-time highs can seem counterintuitive. After all, everyone wants a good deal, which usually means paying less for something, not more.
But investing in shares of a company is different from buying a product or service. Companies with a clear runway for growing earnings and delivering on shareholder expectations can still be worth investing in. Here's why Deere fits that mold.
For latest quarter, the company reported net income of $1.8 billion, which was down 24% from to the same quarter in 2024 and 37% lower than the comparable 2023 quarter. Falling earnings usually cause a stock sell-off, not new all-time highs. So investors may be wondering why the reaction to the latest results has been so positive.
Deere is a cyclical company whose earnings tend to ebb and flow based on various factors. When its end markets are thriving due to high crop prices, crop yields, or economic growth, then its customers may be more willing to boost their spending by expanding operations or upgrading their equipment. Management hopes that growth compounds over time so that each subsequent period of expansion is higher than the last, and each period of contraction isn't as bad. Deere's results reflect this pattern over time.
As you can see in the chart, earnings didn't just expand -- they exploded, more than tripling from pre-pandemic highs at the peak. Even after the pullback, Deere's trailing-12-month (TTM) earnings are still more than double pre-pandemic highs. And the stock price reflects that earnings growth.
In sum, the latest results only look bad compared to its comps from the last couple of years. The stock's valuation is still reasonable, with a 22.6 price-to-earnings (P/E) ratio.