Targeted chemical application is going to change the world so I did some long division on the back of a laptop. I will share that info now. Deere has a market cap of roughly 125B. There are 2.2M farms in the US. Canada has about 225K farms. I'm not sure how to estimate the rest of the world that uses copious herbicides, like we do so I am just going to round that number up to 3M. A targeted sprayer will reduce chemical application by 99%. Crop inputs are wildly expensive so such a sprayer would easily be worth 150K. I estimate cost to mass produce such a sprayer at under 50K. That leaves 100K profit and development recovery. Everyone will have to switch to targeted spraying. Everyone. This will not be a choice. It's tough to compete with a guy who has 30~50K less annual crop input cost. However, there are several companies in the advanced stages of bringing such a product to market. Deere is a huge company with total market coverage so I would guess Deere will achieve something like 20% market capture. I will pull the number of 7 years out of thin air, as the time to uptake this equipment. Add 3, carry the 9 and we end up with roughly 4.3B of annual net profit from this business for perhaps several years before competition squeezes it down. This level of profit won't last forever. As competition moves in, prices will need to sharpen; at least, a little. That will increase net roughly 60%. This will surely put Deere in a new valuation strata. It might perhaps double the value, at most? Given the diluted EPS of 23.25, this room to run is not enough to capture my interest. Deere is a well run company and would probably be a core holding for most people. For me, the 1.14% dividend is too low to be relevant and the earnings are too low for such an efficient company. The money this company makes is not trickling back to the owners, as it should, so I do not want to partner with this management. So, I am looking for a smaller company that will ride a massive wave if they can successfully bring this technology to market.
