Tag Archives: position

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 →