Is There A Better Pick Over Deere Stock?

DE: Deere logo

We think that Bristol Myers Squibb stock (NYSE: BMY) is currently a better pick than Deere stock (NYSE: DE), despite BMS’s comparatively higher valuation. BMY stock trades at a P/S ratio of 3.4x, compared to 2.8x for DE stock. We compare these two companies due to their similar revenue base. Although Deere saw a strong rise in revenue over the last twelve months, the growth has been much better for BMS in the long run.

If we look at stock returns, BMS’ 24% growth is better than the 11% returns for Deere over the last twelve months. This compares with 9% growth in the broader S&P 500 index. There is more to the comparison, and in the sections below, we discuss why we believe that BMY stock will offer better returns than DE stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis Deere vs. Bristol Myers Squibb: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Deere Revenue Growth Has Been Stronger

  • Both companies saw a rebound in sales growth over the last twelve months. Still, Deere’s revenue grew at a much faster pace of 20.2%, compared to 9.1% for BMS.
  • Looking at a longer time frame, Deere’s sales grew at a CAGR of 6.5% to $44.0 billion in 2021, compared to $37.4 billion in 2018, while BMS’ revenues grew at a CAGR of 29.2% to $46.4 billion currently, compared to $22.6 billion in 2018.
  • Note that BMS’ revenue growth has been aided by its Celgene acquisition in 2019.
  • Deere saw a strong rebound in demand for construction and agriculture equipment over the last year or so. The company benefits from the above-average age of farming equipment in the U.S. The demand has also been buoyed by rising agricultural income. That said, the farm income in 2022 is expected to decline, given the easing of the government’s aid related to the pandemic. [1]
  • However, things have changed for equipment manufacturers over the last month. The inflationary pressure was already hitting several manufacturing companies, and now, with the Russia-Ukraine war, the raw material costs have gone up even higher. Deere has paused taking advance orders in a few cases with concerns around pricing. This rise in costs is likely to impact the earnings growth for the company in the near term.
  • The recent rise in BMS revenue has been led by a rebound in demand post-pandemic induced lockdowns.
  • BMS’ anticoagulant – Eliquis – continues to gain market share and bolster the company’s overall top-line growth. However, it now faces biosimilar competition for its top-selling drug – Revlimid.
  • Our Deere Revenue and Bristol Myers Squibb Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, Deere’s revenue is expected to grow faster than BMS over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 10.7% for Deere, compared to an 8.2% CAGR for BMS, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
Relevant Articles
  1. What’s Next For Deere Stock After An Upbeat Q1?
  2. Will Deere Stock Trend Higher Post Q1?
  3. What’s The Outlook Like For The Capital Spending Theme In 2023?
  4. Pick Either Deere Stock Or Its Peer – Both May Offer Similar Returns
  5. What’s Next For Deere Stock After A Solid Q4?
  6. What To Expect From Deere’s Q4?

2. Deere Is More Profitable But With Higher Risk

  • Deere’s operating margin of 20.5% over the last twelve-month period is better than 14.9% for BMS.
  • This compares with 17.9% and 22.6% figures seen in 2019, before the pandemic, respectively.
  • Deere’s free cash flow margin of 11% is lower than 20% for BMS.
  • Our Deere Operating Income and Bristol Myers Squibb Operating Income dashboards have more details.
  • Looking at financial risk, Deere’s 37% debt as a percentage of equity is higher than 27% for BMS, while its 7% cash as a percentage of assets is lower than 16% for the latter, implying that BMS has a better debt position and more cash cushion., making DE stock a comparatively more risky bet.

3. The Net of It All

  • We see that Deere is more profitable and available at a lower valuation than BMS. However, BMS has demonstrated better revenue growth over the recent years, and it comes with lower financial risk.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe BMS is currently the better choice of the two.
  • The table below summarizes our revenue and return expectation for Deere and BMS over the next three years and points to an expected return of 45% for BMY over this period vs. just a 7% expected return for DE stock, implying that investors are better off buying BMY over DE, based on Trefis Machine Learning analysis – Deere vs. Bristol Myers Squibb – which also provides more details on how we arrive at these numbers.

While DE stock may see higher levels, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Deere vs. Amkor.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2022
MTD [1]
YTD [1]
Total [2]
DE Return -2% 19% 306%
BMY Return 2% 19% 33%
S&P 500 Return 0% -5% 103%
Trefis Multi-Strategy Portfolio 0% -8% 263%

[1] Month-to-date and year-to-date as of 4/10/2022
[2] Cumulative total returns since the end of 2016

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  1. Farm equipment makers cut pre-planting season production as U.S. inflation bites, Bianca Flowers, Reuters, Mar 25, 2022 []