Tag Archives: leading
Deere & Company (DE): Agriculture Leader Trading At 30% Discount
August 14, 2013 The second key to Deere’s long-term success is its leading position in developed economies including the US and Canada. In spite of recent weakness in crop prices, the US Department of Agriculture is projecting farm income to rise by 14% in 2013, totaling $128 billion. Those billions of dollars of income will be reinvested by farmers and producers, with an emphasis on upgrading older machines or simply buying new ones. Although not growing as quickly as it’s the South American region, North America is a huge market for Deere that continues to deliver steady sales and earnings growth. In addition to sales and earnings growth, Deere also carries a solid dividend yield of 2.5%. On the earnings front Deere is expected to grow earnings by 12% this year and 9% annually in the next five. That’s not exactly jaw-dropping growth, but Deere is a steady market leader in position to deliver steady and predictable returns. That is the right model and goal for a solid blue chip like Deere. But the best part of Deere right now is its valuation. Its forward P/E of 10x is a huge discount to its 10-year and peer average of 13x. The Takeaway Looking ahead, Deere will be facing some headwinds, with slow growth in Europe and rising production costs weighing on margins. But big picture, this is a great company and stocks for investors that are bullish on the long-term trend in agriculture. If shares simply traded with the same valuation as its peers, Deere would jump to $106, a 30% premium from current levels. Continue reading
US Farmland Price Rally In ‘Clear’ Slowdown
The rally in US farmland prices is in a “clear” slowdown which has already seen prices fall in some leading agricultural states, a leading farm economist said, warning of a dent to values from falling crop prices. Farmland prices continue to rise, with a monthly market index figure coming in at 58.4, well above the 50.0 stagnation level, above which it has stood since February 2010, a Creighton University survey of lenders showed. However, this represented a fall from the 62.1 the May figure, and was the sixth month-on-month decline out of the last seven readings. And the overall rise concealed declines in prices including Iowa, the top-ranked producing state for both corn and soybeans, second-ranked Illinois and Kansas, the biggest US wheat-growing state. ‘Clear downward trend’ “We are tracking a clear downward trend in farmland price growth,” Creighton University economist Ernie Goss said, blaming the prospect of far lower prices for this year’s US crops than the 2012 harvest/ “This downward trend in agriculture commodity prices has softened the growth in both farmland prices and farm equipment sales.” Professor Goss added: “I expect that growth to continue to fall as the US dollar strengthens and agriculture commodity prices weaken.” A strengthening dollar presses values of dollar-denominated exports, such as many commodities, by reducing their competitiveness to buyers in other currencies. The US share of world corn exports in 2013-14, at less than one-third, will be the lowest since at least the 1960s, bar the drought-affected 2012-13 result, according to the US Department of Agriculture. ‘Excessive air in asset price bubbles’ Professor Goss’s warning follows an observation from officials at the US Federal Reserve’s Chicago bank that “signs of moderation in farmland value gains emerged” in the first three months of 2013. The Kansas City Fed said that “the pace of appreciation moderated somewhat” , noting “slower growth in farm income”, which was limited by “declining crop prices and higher production costs”. Meanwhile, Capital Economics economist Paul Ashworth has warned that “there does appear to be a localised bubble in Corn Belt farmland values”, spurred by last year’s rally in grain prices. Professor Goss also cautioned that 43% of bankers contacted for the Creighton survey concurred the Fed’s ultra-easy monetary policy, which it this week signalled may be withdrawn, had put “excessive air in asset price bubbles such as farmland prices”. However, the survey gave no reading of the breakdown of the other 57% of respondents, and many observers have forecast that interest rates will remain low enough to avoid a repeat of the early-1980s’ crash in land prices. And the latest survey showed farmland price growth accelerating in some states, including Missouri and Nebraska. Professor Goss warned last year over the threat posed by a farmland price “bubble”, before the recovery in crop prices which, with insurance payouts to drought-hit growers, helped lift farm incomes. Continue reading
