DE Thesis Assessment
Deere & Company
DE's market price of $672.00 appears to be consistent with the fundamental value indicated by this analysis.
After a 13% post-earnings rally to $672, Deere's stock price appears to have largely absorbed the improved fundamental outlook. The raised NI guidance ($4.5-5.0B, from $4.0-4.75B), resumed buybacks ($750M in Q1), improving FS credit quality, and accelerating used equipment clearance have de-escalated five of seven risk markets. However, the market's swift repricing — combined with persistent FTC right-to-repair uncertainty (32% settlement probability, wide remedy outcome range) and the fact that PPA (the largest segment) is still declining — suggests the current price reflects a balanced view of the improved earnings trajectory against the unchanged regulatory overhang. The ensemble sees the risk profile as moderately improved but not sufficiently mispriced at $672 to classify as price-below-value.
What the Markets Suggest
Deere & Company's post-Q1 FY2026 probability landscape presents a materially improved picture relative to the pre-earnings assessment. The ensemble's updated forecasts indicate that the financial and cyclical risks identified across the original five-lens analysis have de-escalated significantly, while the regulatory risk vector remains unchanged. This asymmetric shift -- downside risks compressing while structural strengths are confirmed -- suggests the current price may not fully reflect the improved fundamental trajectory.
The most significant development is the raised net income guidance from $4.0-4.75B to $4.5-5.0B, which the ensemble translated into a dramatic reduction in downside probability: the likelihood of missing the $4.0B floor dropped from 28% to 9%, and the Perfect Storm compound failure scenario was reduced from 8-15% to 3-8%. This guidance raise, combined with explicit improvements in Financial Services credit quality and accelerating used equipment clearance, addresses the three most concerning risk vectors from the original analysis -- funding fragility, FS portfolio amplification, and cyclical trough depth. The resumed $750M buyback in Q1 further validates management confidence that the structural margin improvements provide sufficient buffer against the $2.4B headwind gauntlet.
The resolution of the precision ag adoption market (YES, Brier score 0.1024) provides important calibration feedback. The ensemble's initial 68% probability proved well-calibrated against the actual outcome, and the resolution confirms the technology moat-widening trajectory that the Moat Mapper identified. Deere's disclosure of accelerating adoption metrics during Q1 earnings validates the counter-cyclical R&D investment thesis and supports the DEFENSIBLE competitive position classification. This is particularly significant because only 20-30% of customers were deeply engaged pre-Q1, meaning the adoption acceleration may be widening the high-switching-cost base.
However, the FTC right-to-repair case remains the irreducible uncertainty in the thesis. With 32% settlement probability unchanged and remedy scope ranging from narrow (moat-preserving) to broad (moat-threatening), this single variable could shift the entire assessment. The four-lens convergence on this risk -- the strongest risk identification in the analysis -- means that no amount of cyclical improvement resolves the regulatory overhang. The 8-15% probability Regulatory Cascade scenario, in which a broad FTC remedy combines with state legislation to force open Deere's proprietary ecosystem, remains the primary tail risk and the most important monitoring priority.
The net assessment suggests Deere appears to offer value relative to the risk profile indicated by the updated probabilities. The combination of de-escalated financial risks, confirmed technology moat, raised guidance with management-demonstrated confidence (buyback resumption), and improving cyclical indicators creates a constructive fundamental backdrop. The classification as price-below-value reflects this improved probability landscape, tempered by MEDIUM confidence due to the unresolved FTC overhang, recent stock appreciation, and persistent aftermarket revenue opacity that limits precision in quantifying right-to-repair exposure.
Market Contributions7 markets
This is the single most important variable in the DE thesis with maximum information gain (1.00). A settlement could be either bullish (narrow remedy preserving the moat) or bearish (broad remedy forcing open proprietary diagnostics). The 32% probability is essentially unchanged from the initial 33%, indicating Q1 earnings provided no new information on FTC trajectory. The wide outcome range -- narrow (50-60%), moderate (25-35%), broad (10-20%) -- means this market carries high residual uncertainty regardless of whether settlement occurs.
This market tests whether the $2.4B headwind gauntlet overwhelms structural margin improvements. The dramatic de-escalation from 28% to 9% reflects the raised guidance ($4.5-5.0B), creating a $500M buffer above the $4.0B floor. Missing this threshold now requires multi-factor catastrophic deterioration. The 9% probability effectively validates the STRETCHED (not STRAINED) funding assessment and supports the structural margin durability thesis.
This market directly tests the Gravy Gauge vs. Stress Scanner conflict on whether the $64.7B FS portfolio is a stabilizer or amplifier. The de-escalation from 22% to 13% after Q1 earnings -- which showed lower provisions and favorable spreads -- supports the stabilizer thesis. The $12B Farmer Bridge Assistance program and accelerating used equipment clearance reduce the preconditions for the Perfect Storm scenario. South America industry softening (-5%) remains the primary residual risk vector.
A credit rating action would be an independent external validation that FUNDING_FRAGILITY has escalated beyond STRETCHED. The de-escalation from 17% to 10% reflects the raised guidance and improved cash flow (+$500M), which place Deere well above investment-grade thresholds. At 10%, the ensemble treats a rating action as a low-probability tail event rather than a material near-term concern. This effectively confirms the STRETCHED classification and reduces the compounding risk in multi-factor stress scenarios.
Used equipment pricing is the primary leading indicator for the agricultural cycle -- the shared assumption underpinning all four lens conclusions. The de-escalation from 22% to 13% reflects management commentary that used equipment is clearing at an 'accelerated pace' with the trade ladder 'freeing up' and tractor orders extending into Q4. Combined with $12B farmer assistance supporting buyer demand, this suggests the cyclical trough assumption (E3 evidence) is holding. The 13% residual probability reflects uncertainty about broader agricultural economics rather than Deere-specific factors.
This market tests whether regulatory pressure is concentrated (federal FTC case only) or diffusing into a multi-state compliance challenge. The essentially unchanged probability (19% to 18%) indicates Q1 earnings provided no new information on the legislative landscape. At 18%, the ensemble considers multi-state legislation possible but not probable. If this materializes alongside a broad FTC remedy, it would create the Regulatory Cascade scenario that shifts the regulatory baseline regardless of the FTC outcome.
A dividend increase during trough conditions is a revealed-preference indicator of management confidence in cash flow adequacy. The escalation from 78% to 87% reflects the resumed $750M Q1 buyback and raised guidance, which indicate management views the structural improvement thesis as intact. The 87% probability effectively prices in a dividend increase as the base case, validating the STRETCHED (not STRAINED) funding assessment and reducing the Perfect Storm tail risk (dividend freeze was a key trigger in that scenario, now reduced to 3-8% probability).
Balancing Factors
The stock has appreciated approximately 30% year-to-date, suggesting much of the improved earnings outlook may already be reflected in the current price. The market's response to the Q1 earnings beat (11.99% single-day gain) may have front-loaded the re-rating that the probability improvements suggest.
The FTC right-to-repair case carries asymmetric downside risk: a narrow remedy preserves the status quo, but a broad remedy (data portability mandate, 10-20% probability) could structurally impair the moat-specific 150-250bps margin premium over 3-5 years. The unchanged probability on this market means the single most important variable in the thesis has received no informational update.
South America industry softening (-5%) and potential tariff escalation represent exogenous risk vectors that could re-escalate financial risk markets. The de-escalation in cyclical risks assumes the current policy and agricultural environment persist, which may not hold over a 6-12 month horizon.
Key Uncertainties
FTC remedy scope remains the dominant uncertainty: the range from narrow (diagnostic tools only) to broad (data portability mandate) creates a spread of outcomes that could shift the classification in either direction. No timeline visibility exists for case resolution.
Whether the 450bps structural margin improvement is primarily technology-driven (durable) or mix/pricing-driven (cyclical) remains unresolved. The Gravy Gauge and Moat Mapper partially decomposed this (150-250bps moat-specific), but the next cyclical upturn will be the true test.
Aftermarket revenue composition (estimated at 15-25% of equipment revenue) is not disclosed by Deere, creating a systematic barrier to quantifying right-to-repair financial exposure. All four lenses flagged this opacity as limiting confidence in their assessments.
The mixed assessment reflects offsetting forces: improving cyclical fundamentals and de-escalating tail risk create moderate upward pressure, but the 13% earnings-day rally, unresolved FTC risk, and still-declining PPA segment create countervailing headwinds. A narrow FTC remedy would likely shift direction to upward-pressure; a broad remedy would shift to downward-pressure.
Confidence note: Confidence is MEDIUM for three reasons: (1) the FTC right-to-repair case remains the single most important swing variable with unchanged 32% settlement probability and wide remedy outcome uncertainty, (2) the 13% post-earnings rally has already priced in much of the guidance raise and improved outlook, and (3) PPA (the largest segment at ~50% of equipment revenue) is still declining 5-10%, meaning the cyclical trough is not yet over despite improving signals.
This assessment synthesizes probabilistic forecasts from an AI model ensemble for educational and informational purposes only. Model outputs may contain errors, hallucinations, or data lag. It does not constitute financial advice, a recommendation to buy or sell securities, or a guarantee of future outcomes. Past model performance does not predict future accuracy. Investors should conduct their own research and consult qualified financial advisors before making investment decisions.