Deere & Company
Yen-Hua Huang (Gina)
Cheng- Yuan Huang
Yu-Te Hung (Ted)
Te-Chi Kuo (William)
Presented: April 12, 2012
Agenda
Overview
Macroeconomics
Industry Descriptions
Company Descriptions
Financial analysis and Competitors
Financial projection and Models
Recommendation
Overview:
Deere & Company, founded 1837, is an globalized company and
provides products and services primarily for agriculture and forestry
all over the world .
It operates in three major business segments: agriculture/ turf
(A&T) , construction/forestry, & financial services.
GICS MAP
20106010
Symbol
DE
Current Price
79.34
(4/12/2012)
Forward P/E
12.16
Market Cap.
32.04B
Enterprise Value
57.87B
ROA
5.99%
EPS
6.75
ROE
42.32%
Profit Margin
8.63%
Source from Deere Mar 2012 presentation for strategy
Macroeconomic Tailwinds :
•Global population
•Global infrastructure needs
Macroeconomic Tailwinds :
 Population growing in size and affluence
By 2050, world population will reach 9 billion,
up from ~7 billion today, with most of
population growth in Asia and Africa
More People, More Food
Source from Deere Mar 2012 presentation for strategy
Source from Deere Mar 2012 presentation for strategy
Source from Deere Mar 2012 presentation for strategy
Source from Deere Mar 2012 presentation for strategy
Sector : Industrial Goods
Industry : Farm and Construction Machinery
Farm Equipment :
Construction Equipment :
Source from IBIS world
Construction Revenue Drivers :
• the value of all non-residential construction
• Demand from mining
• The value of residential construction
Source form IBIS world
Farm revenue drivers
•Demand from crop production
•Agriculture price index
•Private spending on home improvements
Source form IBIS world
Main Competitors:
Company's
Name
Ticker
Deere &
Company
DE
79.34
9.6
6.75
Caterpillar
Inc.
CAT
105.87
9.35
7.4
CNH Global
NV
CNH
41.04
8.83
3.91
Kubota
Corporation
KUB
47.83
14.15
2.59
AGCO
Corporation
AGCO
45.55
8.61
5.95
Stock Price Forward P/E
EPS
Relevant Stock Market Prospects
Deere & Company’s GICS code is #20106010.
Therefore, the firm majorly competes with Caterpillar Inc. (CAT),
CNH Global NV( CNH), and AGCO Corporation (AGCO).
Relevant Stock Market Prospects: Industry
Top 1st Player:
Caterpillar Inc. (CAT) accounts for 20.3% of the market share.
Top 2nd Player:
Deere & Company (DE) accounts for 7.5% of the market share.
-Caterpiller provides more comprehensive product lines, including
construction & mining equipment and logging machinery
-Deere is the world’s leading manufacturer of agricultural equipment
-Both of them are Illinois-based
Relevant Stock Market Prospects
Key statistics regarding Deere and its competitors
Source: Yahoo Finance
Relevant Stock Market Prospects
- Compared with the market index
Source: Yahoo Finance
A Glance at the Company and Its Business
- Basic Description
Deere & Company manufactures and services
primarily for agriculture and forestry worldwide.
Agricultural output will need to double by midcentury to satisfy demand and do so from the
essentially same amount of land and with even less
water.
Deere & Company is consisted of:
1. Agriculture & Turf Segment
2. Construction & Forestry Segment
3. Financial Service Segment
A Glance at the Company and Its Business
-Basic Description
-Agricultural & Turf segment provides utility equipment and
related parts
Rice Binder
Sub-compact
Utility Tractor
Tractor Model D
Wheeled Feller
Buncher
Cotton Picker
Source from Deere website
A Glance at the Company and Its Business
-Basic Description
-Construction & Forestry segment offers utility equipment and
related parts
Earthmoving
contractor and road
builder
Power Shovel
Source from Deere website
A Glance at the Company and Its Business
-
Basic Description
-
Financial service segment works for worldwide equipment
financing, marketing and business development,
agricultural financial service, and international lending.
-
Deere’s interest income will be viewed as the operating
assets.
-
If its debt rating is downgraded, the financial service will not
support Deere’s sales as before.
A Glance at the Company and Its Business
Deere’s Strategy
1. Continue to grow strong at 2nd position in North America
2. Globalize the Business
3. Improve volumes and pricing
4. Grow market share in developing market
A Glance at the Company and Its Business
A Leading Technology
Source: Deere’s website
A Glance at the Company and Its Business
Revenue by Business Segment
A Glance at the Company and Its Business
Revenue by Geographic Segment
A Glance at the Company and Its Business
Business Drivers:
- Demand from crop production
-Agricultural price index
-Private spending on home improvements
-Natural disaster index
Brief Description of Deere’s Competitors:
Caterpillar Inc. : world’s leader of manufacturer of
construction and mining equipment.
CNH Global NV: important manufacturer of agricultural and
construction equipment.
Kubota Corporation: Japan’s leader of manufacturer of
agricultural and construction equipment
AGCO Corporation: Europe-based manufacturer of
agricultural equipment
CAT
CNH
KUB
AGCO
Financial Ratios
Company's
Name
Deere &
Company
Caterpillar
Inc.
CNH Global
NV
Kubota
Corporation
AGCO
Corporation
Ticker
Stock Price
Forward
P/E
EPS
EBIT/TA
EBIT/EV
DE
79.34
9.6
6.75
13.00%
8.61%
CAT
105.87
9.35
7.4
13.78%
7.03%
CNH
41.04
8.83
3.91
7.62%
8.91%
KUB
47.83
14.15
2.59
8.84%
7.46%
AGCO
45.55
8.61
5.95
12.32%
7.33%
Multiples
DE
CAT
CNH
KUB
AGCO
Industry
Ave.
Market
Cap
32.88B
68.55B
9.84B
12.01B
4.43B
2.14B
Current
P/E
12.12
14.31
10.5
18.47
7.66
10.15
12.61
Forward
P/E
9.6
9.35
8.83
14.15
8.61
N/A
10.11
Prof.
Margin
8.63%
8.19%
4.89%
5.44%
6.65%
7.38%
6.76%
P/B
4.82
5.34
1.21
1.55
1.49
2.2
2.88
P/S
1
1.14
0.5
0.99
0.51
0.9
0.83
ROE
5.99%
6.16%
4.17%
4.35%
6.00%
4.65%
5.33%
ROA
42.32%
40.29%
12.07%
8.60%
20.57%
14.00%
24.77%
Joel Greenblatt
(In
thousands)
EBIT
Tangible
Assets
EV
EBIT/TA
EBIT/EV
SUM
DE
4.98
47.08
56.91
13.00%
8.61%
21.61%
CAT
7.12
69.99
99.84
13.78%
7.03%
20.81%
CNH
1.94
31.01
21.45
7.62%
8.91%
16.53%
KUB
1.12
16.37
14.75
8.84%
7.46%
16.3%
AGCO
0.59
5.40
5.17
12.32%
7.33%
19.65%
(in million)
Source: Yahoo. Finance
Dupont Analysis
Dupont Ratio
2008
2009
2010
2011
Profit Margin
7.96%
4.21%
7.95%
9.53%
Total Asset
Turnover
66.62%
50.46%
54.48%
61.12%
Equity
Multiplier
592.50%
852.02%
686.42%
707.38%
ROE
31.42%
18.10%
29.73%
41.20%
Liabilities Breakdown
Assets Breakdown
Receivable :
Source form Deere 2010 annual report
Financial Projections
1. Required return
Current Shares
Shares Outstanding
Current Share Price
Capital
Beta
Equity Value
Debt
Leverage (Debt/equity ratio)
403390000.0
$79.34
1.41
32,004,962,600
26,589,600,000
83.08%
Rate Assumptions
Tax Rate
Risk Free Rate
Market Risk Premium
Cost of Debt
34.00%
5.00%
6.00%
2.85%
Required Returns
Equity Return
WACC
default risk premium
13.46%
8.21%
3.00%
Required Returns
11.21%
2012/4/12
Financial Projections
2.
Growth rate
3.
Key assumption(A1 and A2 sheet)
Application of Valuation Tools
DCF Model
Base
Downside
Upside
Price
96.67
68.96
126.11
Weight
33%
33%
33%
Price
31.9011
22.7568
41.6163
96.2742
Current Price
$79.34 (04/12/2012)
DCF Price
$96.27
Multiple Price
$85.12
Target Price
$94.04
Recommendation:
Buy 100 shares @market price
Thank you !
Q&A