In the years leading up to the COVID-19 pandemic, Deere (DE 0.66%) was struggling to grow profits consistently. 2013 had remained its record-high year for net income, and the stock price had never exceeded $200 per share. Today, it trades for around $345 per share -- double three years ago -- even though it is down from its spring high of $446.

Deere has proven to be a subtle yet effective growth story. It is now the largest farm and heavy construction equipment company by market capitalization -- even bigger than Caterpillar. And in its latest quarterly report, the company is guiding for full-year earnings of $7 billion to $7.2 billion -- which would easily eclipse its record high of just under $6 billion in 2021.

It's no wonder the stock has done so well. Here's why Deere is still worth considering today.

A farmer on a tractor at sunrise.

Image source: Getty Images.

Business is booming

It's been a good year so far for Deere. For its fiscal third quarter (ended July 31), the company was able to increase overall sales by 22%, operating profit by 18%, and net income by 13% on a year-over-year basis. Put another way: Deere is doing an excellent job translating sales growth into earnings growth.

Let's take a closer look at each of its three main businesses.

The largest segment, production and precision agriculture, makes up about 40% of overall revenue. Sales for this area grew by 22% for the first nine months of the year. In Q3 alone, sales reached an all-time high of $6.1 billion -- up a staggering 43% from a year ago -- and the operating margin came in at 21%. Thanks to an improved volume mix paired with higher prices, Deere is now guiding for 14% growth in that segment in fiscal 2022. 

Deere is having no problem implementing price hikes to offset its higher costs -- thanks to its premium brand, strong dealership network, and full suite of offerings. This pricing power also shows that demand for new agricultural machinery and equipment is at some of the highest levels seen in several years. 

Its second segment -- small agriculture and turf -- represents 27% of revenue. This area saw sales grow by 9% for the first nine months. For all of fiscal 2022, Deere forecasts that prices will increase 9% and net sales will rise 10% to 15%.

Deere's third segment -- construction and forestry equipment -- brings in 26% of revenue. Its sales grew 10% for the nine-month period, and the company is expecting about the same for the year. Thanks to strong construction equipment demand in the U.S. and Canada and and a 10% lift in prices, that segment is on pace for a record 2022. Operating profit for the first nine months was up 31% compared to just a 3% increase in production and precision agriculture and a 15% decline in small agriculture and turf. 

A strong sector of the U.S. economy

A look at Deere can't ignore more general trends. According to the U.S. Department of Commerce, agriculture, food, and related industries contributed 5% of U.S. gross domestic product (GDP) in 2020 and provided 10.3% of U.S. employment. These industries are often perceived to ebb and flow with broader GDP growth.

Yet even as U.S. real GDP growth turned negative in the first and second quarters of 2022, Deere's performance indicates that despite exposure to these industries, it has been able to grow meaningfully and offset inflation.

Let's see if that continues. As good as Deere's latest report was, investors would be wise to tune into the final quarterly report of fiscal 2022 in late November to make sure the company hits its full-year goals. Deere will also comment on its outlook for fiscal 2023, which will likely provide a valuable glimpse into the strength of capital spending in the agriculture, forestry, and construction industries. 

Several good reasons to like Deere

Despite challenges throughout many of the sectors that comprise the U.S. economy, the key industries that Deere serves are doing very well. And years of underinvestment mean that customers are eager to upgrade fleets and purchase premium equipment and machinery.

On top of its continued growth potential, Deere offers investors a 1.3% dividend yield. That may not look like much, but Deere isn't a typical dividend stock. Rather, it prioritizes its balance sheet and growth over its dividend and share repurchases.

Deere's earnings growth will likely face tough comparisons compared to a strong fiscal 2022. But Deere's reasonable valuation paired with excellent management and a market-leading position make it a stock worth owning for years to come.