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Deere Buys Unimil, Eyes Growth in Sugarcane Business in Brazil

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Deere & Company (DE - Free Report) has completed the acquisition of the Brazilian company, Unimil, a provider of the aftermarket service parts business for sugarcane harvesters.

Brazil churns around one-third of the global annual sugarcane production, making it the world’s number one supplier of sugarcane. In October 2019, Deere entered into an agreement to acquire Unimil in a bid to expand its sugarcane business in Brazil and help customers reduce their production costs for sugarcane.

Deere provides connected support services to maximize equipment uptime and grower productivity. Along with Unimil, Deere will expand its service parts portfolio while offering cost-effective solutions for customers. Deere will use its direct-to-customer business model for selling Unimil products. Moreover, Unimil will help Deere’s customers become more profitable and sustainable across the full lifecycle of its products.

Deere is assessing the cost structure by reviewing organization efficiency and footprint assessment, which in turn will help improve margins. Moreover, the company’s voluntary separation program will provide an annual run-rate savings of around $260 million in fiscal 2020. The company is focused on driving capital-allocation decisions, intensifying investments in precision agriculture, and enhancing capabilities in the aftermarket and the retrofit business.

Deere will benefit from focus on launching products with advanced technologies and features, which provides it a competitive edge. The company remains focused on revolutionizing agriculture with technology in an effort to make farming automated, easy to use and more precise across the production process.

As customers’ preferences continue to evolve, it will trigger the need to replace old equipment. Their growing reliance on advanced technology to run complex operations smoothly will continue to fuel Deere’s revenues. The company expects replacement demand for aged fleet to support firm equipment volumes in the near term. Moreover, its efforts to expand in precision agriculture will be a game-changer. In fact, Deere’s continued investments in precision technologies support customer demand in the current situation.

Per the U.S. Department of Agriculture's (USDA) latest available projections, net farm income is anticipated to improve 3.3% year over year to $96.7 billion in 2020. In inflation-adjusted terms, the projected net farm income in 2020, if realized, would be 5.4% higher than the 2000-2018 average ($91.7 billion). This will help farmers resume spending on agricultural equipment, which will drive Deere’s top line. Moreover, sales for small tractors have been strong as the pandemic has driven an increase in projects for home and property owners.

Share Price Performance

The stock has gained 40.6% over the past year, outperforming the industry’s growth of 31.2%.

Zacks Rank & Other Stocks to Consider

Deere currently sports a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the Industrial Products sector include Silgan Holdings, Inc. (SLGN - Free Report) , IIVI Incorporated (IIVI - Free Report) and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While Silgan and IIVI sport a Zacks Rank #1, SiteOne carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have appreciated 28.4% over the past year.

IIVI has an estimated earnings growth rate of 29% for the ongoing year. The company’s shares have gained 18.1% in a year’s time.

SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% over the past year.

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