Kwame Webb: We believe Deere & Co., the world's largest manufacturer of agricultural equipment and the company associated with the leaping-deer logo, has a wide moat. This moat comes from two sources, including an intangible asset and a network effect.
Founded in 1837, the company spent close to 200 years investing in both its brand and its technology to earn the trust and loyalty of American and Canadian farmers. In addition, the company enjoys a second moat source, which is its network effect. Throughout a network of 1,500 dealers, the company provides an unparalleled customer-service experience--such that both new- and used-equipment buyers can rest assure that they will enjoy maximum equipment uptime and low total cost of ownership.
While the company has been highly successful throughout North America, Deere is more than just a North American story. In fact, close to 40% of sales come outside of that region, and the company has made impressive market-share gains in both Western Europe and Brazil over the last several decades. We expect the company to continue to grow in the years to come.
Currently, shares are trading at a modest discount to our fair value estimate of $90. This is due to a combination of excess global crops as well as reduced farmer appetite for incremental equipment. In this environment, we are looking for a 10% discount to our fair value estimate before shares will become 4-star rated.