UNIVERSITY OF OREGON
INVESTMENT GROUP
12/03/10
IME
Deere & Company (DE)
SELL
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta
Shares Outstanding
Average daily volume
(3 month average)
Current market cap
Current Price
Dividend
Dividend Yield
Valuation (per share)
DCF Analysis
Comparables Analysis
Target Price
Current Price
$48.33 - $79.66
DE / NYSE
1.54
424.5 million
4,088,080
32. 262 B
$74.70
$1.20
1.60%
$45.74
$57.09
$51.42 (-32.47%)
$76.14(11/30/2010)
Summary Financials
2009A
Revenue
Net Income
Operating Cash Flow
23.112 B
880 M
1.98 B
Covering Analyst: Robin Wang
Email: zhubin@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In
addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio.
Deere &Company
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u
BUSINESS OVERVIEW
Deere and Company, founded in 1837, is one of the market leaders in farm and machinery industry. It is based in
Moline, Illinois and contains three major business segments: Agriculture and Turf Operation and Construction and
Forestry Operation and Credit Operation, together with its subsidiaries (John Deere) make up the operation profit
for the entire company. These segments are all operated worldwide and can be categorized in two geographic areas:
U.S. and Canada area and Outside of U.S. and Canada area.
The agriculture and turf segment focuses on manufacturing and distributing a full line of equipment and
service parts that are related to farm and turf such as tractors, tillage and seeding application, cotton &
sugarcane harvesters, mowers, etc.
Their construction and forestry segment focuses on manufacturing, distributing and selling machines and
service parts used in construction, earthmoving, material handling and timber harvesting.
“The credit segment primarily finances sales and leases by John Deere dealers and provides wholesale financing to
dealers of the foregoing equipment, provides operating loans, finances retail revolving charge accounts, offers crop
risk mitigation products and invests in wind energy generation.”
BUSINESS AND GROWTH STRATEGIES
Deere &Co.’s acquisition has remained a stable position and has been an experimental opportunities for it to
diversify products. This firm’s major growth mainly relies on organic growth including growth of international
expansion in the past ten years.
Deere and Co. has completed $47 million acquisitions by the end of third quarter of 2010. The acquisition
made for purchasing Israeli cotton picker. “Deere stated in December that the acquisition will expand its
products and services in the company's already successful cotton picker business. Terms of the transaction
were not made public.”
Deere and Co has been using SVA Model for growth ever since last President Ben Lane was still there. SVA,
Shareholder Value Added - essentially the difference between operating profit and pretax cost of capital – is a
metric used by John Deere to evaluate business results and measure sustainable performance. This evaluation
of performance has been proved effective through crisis according to a recent presentation posted on Deere’s
website.
The SVA of Equipment operations in 2007, 2008, and 2009 are $1.224 billion, $1.643 billion and $64 million.
Deere Equipment Operations, to create and grow SVA, are targeting an operating return on average operating
assets (OROA) of 20% at mid-cycle sales volumes in any given year – and other ambitious returns at other
points in the cycle.
2
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The SVA of Financial services in 2007, 2008, and 2009 are $90 million, 59 million and -148 million. Deere
Financial Services, to create and grow SVA, are targeting an after-tax return on average equity of
approximately 13%. The Financial Services SVA metric is calculated on a pretax basis, with certain
adjustments. Operating profit is adjusted for changes in the allowance for doubtful receivables, while the
actual allowance is added to the equity base. These adjustments are made to reflect actual write-offs in both
income and equity.
Deere & Company announced on August 31, 2010 that it has signed a definitive agreement to sell John Deere
Renewables, LLC, its wind energy business, to Exelon Generation Company, LLC, a wholly-owned subsidiary
of Exelon Corporation. CEO Samuel R. Allen believes that the sale would help to sharpen Deere’s strategic
focus and proceeds from this $900 million sale will be invested in growing core equipment business. The wind
energy business includes 36 completed projects in eight states with an operational capacity of 735 megawatts.
The decision of this operational focus turns out to be a positive impact as stock price went straight up in the
follow month.
MANAGEMENT AND EMPLOYEE RELATIONS
Sam Allen, 56 years old, is Chairman and Chief Executive Officer of
Deere & Company, appointed in June 2009. He has been in the company
since 1975 after graduated from Purdue University. Previously, he served
as President of Worldwide Construction & Forestry Division and was
responsible for the global operations of John Deere Power Systems, for
Deere's intelligent mobile equipment technologies and for Deere's
advanced technology and engineering.
Samuel R. Allen
Chairman and
Chief Executive
Officer
Deere & Company
He has served as a senior officer of the company since 2001, with additional responsibilities in
human resources, industrial relations, and John Deere Credit's global operations.
In addition, Allen also serves as Chairman of the Council on Competitiveness as of January 2010. He was
appointed to Whirlpool Corporation's board of directors in June 2010.
Samuel R. Allen is the only member among 11 people on the board who also holds position in the company,
which indicates the common interest between shareholders and the board of directors. He was compensated
$5.6 million in 2009 for the double responsibility he has bared.
PORTFOLIO HISTORY
As of November 12, 2009 John Deere has appreciated 59.95% We currently own 400 shares
purchased at a cost basis of $11,856 in the Tall Firs portfolio..
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RECENT NEWS
Deere & Company Raises Dividend , Dec. 1st, 2010
“The Deere & Company Board of Directors today increased the company's dividend to $.35 a share on common
stock. The new quarterly rate represents an increase of 5 cents per share over the previous level – an increase of
approximately 17 percent. Since early 2004, the company has increased its quarterly dividend on eight separate
occasions including today's announcement.”(Deere &Co. News Press) The SVA model sees increase dividend payout
as an indicator of improvement. However, Deere is the only company in the industry using SVA valuation and it is
hard to tell if investors are happy about this announcement due to a general industrial price jump for most stocks in
machinery industry.
Foreign firms in China no longer benefit from tax breaks, Dec. 1 st, 2010
“According to an earlier announcement made by the State Council (China's cabinet), the country has begun collecting
city maintenance and construction taxes, and education-supporting taxes from foreign companies and individuals with
commercial interests in the nation.” The long-term benefit for companies with large amount of revenue generated
from this country, e.g. competitors like Caterpillar, could be hurt, although short term effect would not be significant.
In the Industrial Equipment Battle, Ag Wins, Dec. 1st, 2010
Caterpillar and Deere& Co. are considered major winner, “the 800 pound gorilla in the industrial equipment
business”, in current agflation trend. However, Deere should be favored in a while considering Caterpillar’s large
growth in sale of mining equipment and constructions are slowing down as China and India’s deflating policy taking
effect gradually. Caterpillar is growing rapidly with huge cost on merge and acquisition, taking great amount of risk in
another way, which eventually wouldn’t be a good sign. While Deere has done the research and introducing new line
of tractor in India with lower horsepower but low price, low risk for return as well. With 2010’s return posted
recently, Deere’s price should be able to stay strong for a while.
U.S. Agriculture Economy Expands as Exports, Profitability Head for Record, Nov. 30th, 2010
“U.S. agriculture is booming even as the broader economy struggles to recover from recession, with exports heading
to a record and farmer profits near an all-time high.” “Net-farm income will rise 31 percent to $81.6 billion this
calendar year as crop prices climb and livestock sales increase, according to a separate USDA forecast.” Farmer’s
profit increase should have a positive impact on Deere & Co. , although risk of rise of price need to be taken account
for if demand of export goes up too much.
4
Deere &Company
University of Oregon Investment Group
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INDUSTRY
Market Position
Deere & Co is one of the market leaders of the agriculture and construction machinery industry. With diversified product in three
operation segments and a good management team who knows their focus clearly, the company has completed a solidly profitable year
and maintained its strong financial condition in 2009 in an environment of intense global economic pressure. In 2010 as the market picks
up, Deere has obtained worldwide net sales and revenues and increased 6 percent to $18,803 million for the first nine months, compared
with $17,778 million a year ago. Other sizable competitors among S&P 500 include Caterpillar (CAT), Paccar (PCAR), and Cummins
(CMI). Globalization of business has brought Deere oversee profit and competitors as well: Komatsu, CNH, to name just a few.
Risk Factors on Expense
The Company’s businesses are exposed to variety of risks and uncertainties of governmental bodies, e.g. World Trade
Organization, Brazilian government. The negotiation between parties could have effect on exchange rate, commodity price and interest
rate of each country indirectly. The ongoing currency war at this moment would be a good example. The net sales outside the U.S. and
Canada decreased by 28 percent in fiscal year of 2009, while unfavorable effect of currency translation was included as 8 percent.
Increase in raw material would have a negative impact on operating cost as well. Factors that might have effect on this include weather
condition and environmental risk on regulation.
Market Outlook
Company equipment sales are projected to increase by about 12 percent for fiscal year 2010 and about 32 percent for
the fourth quarter, compared with the same periods a year ago. Included are a favorable currency translation impact of
about 2 percent for the year and an unfavorable impact of about 1 percent for the fourth quarter. For the fourth
quarter, net income attributable to Deere & Company is anticipated to be approximately $375 million.
Agriculture and Turf Agriculture industry
is expected to be accelerated growing
market with low possible downturn. The
demand for food driven by 1.9 billion
increases in population in 25 years would
push the growth of simply just need of
meet 2.4% to 3.4% per year and last at least
10 years each. The historical government
support of agriculture by
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China from 2004-2010 has increased from 0 to 83
billion of RMB. Meanwhile, government support of
Agriculture from Brazil approved in 2010-2011 alone
is R$116 billion, remaining 100 billion targeted to
Agribusiness. The government equipment purchases
consisted of long terms and high interest rate is
definitely a good catalysis for the recovering industry.
Construction and Forestry The worldwide
construction spending has been going up in 3.6%
since 2008 eventually reaching to 9915 billion in 2020, with China surpassing the USA and becoming largest market
for construction in 2020. In 2020 7 out of top 10 construction spending countries will be emerging market and
catching the trend will be essential for construction segment. In addition, innovation in environmental care product is
the major concern in R&D segment.
Credit Credit revenue of Deere from Agriculture segment maintains relatively low return but excellent collection, and
construction segment is more fluctuated and reflects market risk. Sources of liquidity are mainly provide by long term
debt, and about 10-20% from commercial papers. This is provided by historical data of Deere& Co. and would not be
representative for the market.
S.W.O.T. ANALYSIS
Strengths

Strong brand name, leader in the industry products and high customer loyalty

Strong revenue performance with high potential sale growth in construction and forestry segment

Diversified portfolio and active risk management
Weaknesses

Growing amount of income expense due to higher postretirement benefit cost

Few-environmental friendly product, considering recent sale in August of Deere’s only Wind Energy
Project
Opportunities

Revenue increase projected in US, Canada market once economic picks up in 2011

Increasing demand of agriculture equipment in China and other emerging market
6
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
Interim Tier 4 Emissions Technology to meet emission regulation

Uncertainty of currency exchange fluctuations effects on revenue due to international market expansion

Uncertainty of commodity prices fluctuations adversely effects on revenue

Market slowdown in Europe Operation Segment showing little sign of recovering
Threats
PORTER’S 5 FORCES ANALYSIS
Supplier Power
Supplier Power varies among companies in the industry. Deere &Co seeks out for small diverse suppliers and in high
unemployment or emerging economic area maintains weak supplier power. The biggest competitor Caterpillar on the other
hand offers more rights to suppliers and seeks for mutually symbiotic relationship.
Barriers to Entry
Several barriers of entry in the industry due to high requirement on Capital Expenditures cost and brand recognition of the
big companies may stop newcomers to start-up in any new market and demonstrate their competiveness to loyalty
customers. The economics of scales of this industry would also discourage them.
Buyer Power
Buyers are mostly consisted of farmers, who demand not only low price but also performance and efficiency of
product. Their loyalty is essential to firms due to the competitive nature of this industry, therefore after sale service is
also a large part of business.
Threat of Substitutes
These machines made in agricultural industry have been well developed and all the competitors spend huge R&D expense
searching for minor cost development or service improvement, e.g. the crop insurance provided by Deere. Major threat of
substitutes would lie in construction equipment operating segment.
Degree of Rivalry
With more international competitors’ from Japan or Europe participating, this industry is more competitive than ever.
Integrating and diversifying are their methods of expansion. Nevertheless, there are always small niche manufacturers
trying to share a part of the benefit.
7
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CATALYSTS
Upside
Large potential for growth in emerging markets and economies.
New product launched will positively impact on Deere, especially improvement in environmentalfriendly ones
Downside
Severe fluctuations in weather and any other negative impact on commodity price, e.g. interest rate,
exchange rate of currency
Government policies changes to regulate trading and financial activities or environment
COMPARABLES ANALYSIS
Caterpillar (CAT) (20%)
Caterpillar produces construction equipment and mining equipment, diesel and
natural gas engines, and industrial turbines. It also includes unique logistics
services for business other partners which provide integrated supply chain
services for Caterpillar and 50 other companies worldwide.
Caterpillar’s products in machinery are very similar and the target market as well.
It has been involved heavily vertical integration through R&D and acquisition.
The company is also based in Illinois and was founded in 1925.
Caterpillar has a market cap of $55 billion, $24 billion larger than Deere & Co. as well as its position one year before.
The growth of size is mainly contributed by active acquisitions in emerging market and China and product
diversification. The general economic factor affects Caterpillar is still similar to Deere &Co, but probably not any
more in one year if it continues to grow in this rate. Nevertheless, it is one big competitor of Deere &Co. and 20%
weighted average is considered fair value.
CNH Global N.V. (20%)
CNH is the merge of Case and New Holland in Nov. 1999. They operate three
main segments agricultural segment, construction segment and financial segment
make up their business structure, which is very similarly to Deere and
8
Co. And it also provides identical products to Deere& Co. This company is based in Amsterdam but mainly operates in
both western Europe and U.S. And it has not recovered from integration hardship brought by merger until restructuring in
2005. The EV/ Gross Profit and EV/ OCF are similar of the two, so is the capital structure(if CNH could get rid of the
heavy debt burden from merger) and sooner or later this company should be able to compete for the same market share
and customers just like Deere & Co. I give it 20% weighted average.
Komatsu Ltd. (20%)
Komatsu is considered the world's second largest manufacturer of construction
equipment and mining equipment after Caterpillar. It has manufacturing
operations in Japan, Asia, Americas and Europe. The Market Cap of Komatsu
is similar to Deere &Co, so does the revenue in dollars. But Komatsu was able to generate cash flow as strong as Deere
with smaller revenue and enterprise size. Considering the global environment of business and Deere’s growth potential in
construction segment, Komatsu deserves 20% weighted average as a good competitor.
Cummins Inc.
Cummins Inc. holds business in the designing, manufacturing, distributing and servicing
diesel and natural gas engines, electric power generation systems and engine-related
component products, including filtration and exhaust after treatment, fuel systems,
controls and air handling systems. The Company operates in different structure but
produces some similar products in engine systems. The market risk factors for
Cummins Inc. are similar considering its width of business operation. Besides, the
profitable margins of both companies are very identical and debt ratio as well. 20% weight average is believed to be
fair.
Lindsay Co.
Lindsay Corporation (Lindsay) is a designer and manufacturer of self-propelled
center pivot and lateral move irrigation systems used in the agricultural
industry to increase or stabilize crop production. The Company
also manufactures and markets various infrastructure products. On August 31, 2010, the Company acquired Digitec, Inc.
which would further catalyze Lindsay’s innovation. Based in Nebraska, Lindsay is founded in 1955. Considering Deere’s
recent purchase of irrigation system and its market demographic, this fast growing niche company will be a good part of
indicators for valuing 20% as comparable.
9
DISCOUNTED CASH FLOW ANALYSIS
2010 annual data was projected based on same methods of projecting future 8 years unless information provided
in New Press or inconsistent with three quarter’s data.
Beta
I ran a five year monthly regression with Deere against The S & P 500 and derived a beta of 1.54, standard deviation
0.16. This seems reasonable with industrial average about 1.81 and Deere as one of the leading companies deserves a
lower beta. It is also reasonable since last year’s Beta was 1.62 and market was more risky by then.
Revenue
Deere & Co. has already completed their fourth quarter for 2010, but they have not released a Quarter 4 report,
although projected revenue growth of fiscal 2010 to be 12% growth. Revenue was break down into operation segment
and geographic areas, each should be more detailed and accurate to project revenue. I set up projection model for
both method decided to choose the more reasonable outcome, which turned out to be operation segment breakdown.
The regional method follows growth given by 10-K and 10-Q and terminal growth 3%. Each equipment segment
maintains a stable fixed portion of revenue in that area and there goes the financial revenue and total regional revenue.
A growth of 6.86% in 2010 is fairly illegitimate.
The growth of 2010 agriculture and turf segment is stated 8% and construction and forestry as 35% percent. I
assumed construction and forestry segment will not have a big decrease in growth, about -5% each year is projected.
Credit revenues
Credit revenue has remained pretty constant of an average of 8.2% over the previous years and I see no
reason for it to increase in the future. I have averaged the years 2006-2008 and used that average to project
my percentages in the future. I have finance and interest income slightly going down the closer it gets to the
terminal growth rate.
Other Income
Other Income has remained average 1.8% of revenue and I used this to forecast since it remained stable in past three
years. It increased in the third quarter and first nine months this year primarily due to an increase in wind energy income
in both periods and higher crop insurance commissions’ year to date.
The total growth in 2010 is 12.93% relative more reasonable.
10
Cost of Sales
Cost of Sales to net sales ratios for the third quarter and first nine months of 2010 were 72.6 percent and 73.4 percent,
respectively, compared to 76.8 percent and 77.1 percent in the same periods last year. The third quarter improvement was
primarily due to the impact of higher production volumes and improved price realization, partially offset by higher
postretirement benefit costs. The nine month improvement was also affected by lower raw material costs and the favorable
effects of foreign currency exchange. This improvement is assumed to be substantial and thus projected through the
following years.
R & D Expense
Research and Development expense growth at constant rate averaging 3.64%. Deere & Co. has been actively
involved in this department this rate will be fair for Deere& Co.
Cost of Debt
I got an estimated cost of debt around 5.375% Derived from recently issued note that are due to mature in the
year 2029.
SG&A
SG&A expense were higher in the third quarter and first nine months primarily due to increased compensation
expenses and higher postretirement benefit costs, with the third quarter also affected by foreign currency
translation. I left it at 11.11% by taking average of previous year.
Interest Expense and Other Expense
Interest expense decreased in both periods due to lower average borrowing rates and borrowings. I kept it as 1.45%
remaining historical level in the future since economic has recovered. Other operating expenses were higher in the
third quarter primarily due to an increase in foreign currency exchange losses and this loss should be temporary. Long
term fluctuation of currency should average out and I used constant 4.43% for Other operating expenses.
Tax Rate
The effective tax rate for the provision for income taxes was higher in the third quarter primarily due to lower tax
credits related to wind energy projects. In the first nine months, the effective tax rate was higher primarily due to the
effect of the tax charge related to the enactment of the new health care legislation and lower tax credits related to
wind energy projects. In essence long term tax rate should remain constant which is the average of previous, 34.09%.
11
Equity in Unconsolidated Affiliates
Deere & Co. receives income from the subsidiaries it owns. It usually owns between 20-50% of all the shares
outstanding in the company. By comparing other comparable companies in the industry, most of them have not
taken account of this into Net Income and I decided to neglect its impact too.
Depreciation and Amortization
Depreciation has remained very constant around 3.26% and there is no reason for it to increase or decrease drastically
for the future years. However in Deere’s Income Statement, Depreciation and Amortization is included and I did not
double count it in EBIT.
Capital Expenditures & Acquisitions
Deere & Co. makes purchase on business moderately and average 0.63%of last three years of Acquisitions is
moderate. Deere & Co. has stated that Capital Expenditure depends on the restructuring and modernization of key
production plants in the future. Research and Development is also another big CAPEX cost and this should see
increases in the future as well. Average of 11.11% in long term is higher than historical but I believe this is
appropriate.
RECOMMENDATION
Deere and CO. produces fundamental industrial product
and generates strong cash flow with good potential
growth, but current price of Deere &Co is clearly
overvalued. DCF assumptions gave me an implied price
of $45.74, comparable analysis offers $57.09,
Valuation($ per share)
DCF Price
$
45.74
Comparable Price
$
57.09
Target Price
$
51.42
Current Price
$
76.14
Under (Over) Valued
-32.47%
50%
50%
overvaluation of 39.1%. I weighted my target price 50/50 and got a price of $48.01, overvalued of 35.7%. I
am recommending a sell for the Tall Firs portfolio.
12
Deere &Company
APPENDIX 1 – Comparable
Analysis
University of Oregon Investment Group
The University of Oregon Investment Group
($ in millions, except per share data)
Stock Characteristics
Current Price
50 Day Moving Avg.
200 Day Moving Avg.
Beta
Size(in millions)
ST Debt (MRQ)
LT Debt (MRQ)
Cash and Cash Equiv. (MRQ)
Minority Interest
Market Value Preferred Stock
Diluted Share Count
Market Cap
Enterprise Value
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense (MRQ)
Debt/Equity (MRQ)
Debt/EBITDA (LTM)
EBITDA/Interest Expense (LTM)
Operating Results
Revenue (LTM)
Gross Profit (LTM)
EBITDA (LTM)
Free Cash Flow (LTM)
OCF
Valuation
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/OCF
20.00%
20.00%
20.00%
20.00%
20.00% Weighted Avg
CAT
CNH
KMTUY
CMI
LNN
DE
Max
Min
$ 100.52
#####
$ 93.05
#####
$ 80.50
#####
2.64
1.35
Avg.
$ 65.98
$ 62.45
$ 52.23
1.84
Median
$ 68.22 $
$ 66.73 $
$ 54.07 $
1.71
76.14 $
76.59 $
66.46 $
1.54
87.45 $
80.82 $
70.63 $
1.85
43.19 $
41.86 $
32.54 $
2.64
28.30 $
25.54 $
21.57 $
1.35
100.52 $
93.05 $
80.50 $
2.1
60.29
56.86
41.67
1.57
$
$
$
$
63.95
59.63
49.38
1.90
15,514.0
31,132.0
3,753.7
30.8
8.6
83.4
4,933.4
10,707.4
1,550.0
2,784.5
7,998.8
1,130.3
7,486
16,374
3,754
0
15,514
31,132
2,265
0
3,736
12,126
1,182
0
1,001
3,872
1,079
0
1,833
732
937
0
30.79
8.57
83.42
0
4,422.99
9,574.01
1,109.20
-
968
56,982
101,363
12
751
707
415
24,578
38,669
331
23,567
28,078
424.5
32,321
52,428
651.6
56,982
101,363
238.0
10,279
24,959
968.3
27,403
31,197
196.3
19,732
21,360
12.45
750.67
706.61
413
23,029
35,917
26.63%
10.59%
14.61%
5.74%
26.53%
10.76%
14.72%
6.39%
30.44%
13.10%
16.98%
7.79%
28.69%
10.82%
16.77%
5.24%
23.93%
7.61%
10.81%
1.68%
25.47%
9.32%
14.81%
5.90%
23.68%
12.00%
14.62%
6.88%
27.59%
10.70%
13.69%
6.94%
1.557 127.4745 106.145
5.2%
57.7%
45.8%
0.80
4.50
3.82
2.08
15.57
4.77
193
73.8%
5.96
4.64
312
82%
7.38
4.91
228
154%
9.74
2.08
19.19
18%
1.68
2.21
11
13%
1.40
48.05
1.557
5%
80%
31.50
30.44% 23.68%
13.10% 7.61%
16.98% 10.81%
7.79% 1.68%
312
154.3%
9.74
48.05
37,679
10,809
6,318
2,420
358
99
49
(3,121)
2.69 x
1.59 x
9.38 x
6.26 x
16.04 x 10.76 x
21.06 x 13.66 x
18,121
4,938
2,787
348
17,321
4,295
2,362
736
23,560
7,171
4,001
1,302
2,670
37,679
10,809
6,318
2,420
5,113
15,063
3,604
1,628
-3,121
1,185
19,578
4,986
2,899
1,009
2,284
12,487
2,957
1,826
464
1,392
358.4
98.9
49.0
13.8
36.6
1.97 x
7.37 x
13.56 x
18.14 x
1.84 x
7.18 x
13.75 x
19.47 x
2.23 x
7.31 x
13.10 x
19.64 x
2.69 x
9.38 x
16.04 x
19.82 x
1.66 x
6.93 x
15.33 x
21.06 x
1.59 x
6.26 x
10.76 x
13.66 x
1.71 x
7.22 x
11.70 x
15.34 x
1.97 x
7.14 x
14.41 x
19.29 x
Implied Price
$
59.45
$
58.78
$
62.46
$
47.67
Weight
25.00%
25.00%
25.00%
25.00%
Metric
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/OCF
Price Target
Current Price
Under (Over) Valued
$
$
57.09
76.14
-25.02%
25.9%
10.1%
14.1%
5.3%
114.35
0.54
4.20
17.75
17,033
4,491
2,544
157
2,002
Weighted Avg.
1.92 x
6.28 x
11.65 x
15.11 x
APPENDIX 2 – DISCOUNTED CASH FLOW ANALYSIS
The University of Oregon Investment Group
($ in millions, except per share data)
Total Company Revenue
% Y/Y Growth
Cost of Revenue
% Revenue
Gross Profit
Gross Margin
Operating Expenses
SG&A
% Revenue
R&D
% Revenue
D&A
% Revenue
Total Operating Expenses
% Revenue
EBIT
% Revenue
Other (Expense) Income
% Revenue
Interest Expense
% Revenue
Pre-tax Income
% Revenue
Less Taxes (Benefit)
Tax Rate
Net Income
Net Margin
Add Back Depreciation and Ammortization
% Revenue
Add Back Interest Expense*(1-Tax Rate)
% Revenue
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Net Working Capital
Capital Expenditures
% Revenue
Acquistions
% Revenue
Unlevered Free Cash Flow
Discounted Unlevered Free Cash Flows
2007
24,082.2
16,252.8
67.49%
7,829.4
32.51%
2008
28,437.6
18.09%
19,574.8
68.83%
8,862.8
31.17%
2,620.8
10.88%
816.8
3.39%
744.4
3.09%
4,182.0
17.37%
4,391.8
18.24%
(268)
-1.11%
1,151
4.78%
3,717.0
15.43%
883
33.00%
1,793
7.44%
744
3.1%
771
3.2%
3,308.17
13.7%
30,945
128.5%
15,922
66.1%
15,024
62.4%
1,025
4.26%
189
0.79%
2,094
2,960.2
10.41%
943
3.32%
831
2.92%
4,734.2
16.65%
4,959.6
17.44%
(391)
-1.37%
1,137
4.00%
4,262.6
14.99%
1,111
35.57%
2,013
7.08%
831
2.9%
733
2.6%
3,576
12.6%
30,916
108.7%
15,255
53.6%
15,661
55.1%
637
1,117
3.93%
252
0.89%
1,570
2009
2010 3Q
23,112.4
18,803.6
-18.73%
16,255.2
12,490.3
70.33%
66.43%
6,857.2
6,313.3
29.67%
33.57%
2,780.6
12.03%
977
4.23%
873.3
3.78%
4,630.9
20.04%
3,099.6
13.41%
(429)
-1.86%
1,042
4.51%
2,501.5
10.82%
460
34.33%
880
3.81%
873
3.8%
685
3.0%
2,438
10.5%
33,662
145.6%
12,753
55.2%
20,909
90.5%
5,249
767
3.32%
49.8
0.22%
(3,628)
2,126.5
11.31%
758.1
4.03%
692.9
3.68%
3,577.5
19.03%
3,428.7
18.23%
(92)
-0.49%
618.9
3.29%
3,411.2
18.14%
866.4
37.98%
1,414.9
7.52%
692.9
3.7%
384
2.0%
2,492
13.3%
34,652
184.3%
13,636
72.5%
21,016
111.8%
107
432
2.30%
43.1
0.23%
1,910
11.1%
6.0%
1.3%
4.2%
5.4%
6.9%
7.6%
8.1%
0
2010E
26,100.1
12.93%
17,338.3
66.43%
8,761.8
33.57%
1
2011 E
29,697.9
13.78%
19,728.3
66.43%
9,969.6
33.57%
2
2012 E
33,734.4
13.59%
22,409.8
66.43%
11,324.6
33.57%
3
2013 E
36,729.3
8.88%
24,399.2
66.43%
12,330.0
33.57%
4
2014 E
39,265.8
6.91%
26,084.3
66.43%
13,181.5
33.57%
5
2015 E
41,084.5
4.63%
27,292.4
66.43%
13,792.1
33.57%
6
2016 E
42,619.1
3.74%
28,311.9
66.43%
14,307.2
33.57%
7
2017 E
43,897.7
3.00%
29,161.2
66.43%
14,736.4
33.57%
8.1%
45,214.6
3.00%
30,036.1
66.43%
15,178.5
33.57%
2,900
11.11%
950
3.64%
851
3.26%
4,700.6
18.01%
4,912
18.82%
(378)
-1.45%
1,156
4.43%
3377.4
12.94%
1151.34
34.09%
2,226.0
8.53%
850.9
3.3%
762
2.9%
3,839.0
14.7%
36,292
139.1%
15,339
58.8%
20,953
80%
(63)
850
3.26%
164.4
0.63%
2,888
2,888
3,299
11.11%
1,081
3.64%
968
3.26%
5,348.6
18.01%
5,589.1
18.82%
(431)
-1.45%
1,316
4.43%
3842.9
12.94%
1310.05
34.09%
2,532.9
8.53%
968.2
3.3%
867
2.9%
4,368.1
14.7%
39,664
133.6%
17,453
58.8%
22,211
75%
1,258
1,134.46
3.82%
187.1
0.63%
1,789
1,623
3,748
11.11%
1,228
3.64%
1,100
3.26%
6,075.6
18.01%
6,348.8
18.82%
(489)
-1.45%
1,494
4.43%
4365.2
12.94%
1488.11
34.09%
2,877.1
8.53%
1,099.7
3.3%
985
2.9%
4,961.9
14.7%
45,056
133.6%
19,826
58.8%
25,230
75%
3,019
1,288.66
3.82%
212.5
0.63%
442
364
4,081
11.11%
1,337
3.64%
1,197
3.26%
6,614.9
18.01%
6,912.4
18.82%
(533)
-1.45%
1,627
4.43%
4752.8
12.94%
1620.22
34.09%
3,132.5
8.53%
1,197.4
3.3%
1,072
2.9%
5,402.3
14.7%
49,056
133.6%
21,586
58.8%
27,470
75%
2,240
1,403.06
3.82%
231.4
0.63%
1,528
1,141
4,362
11.11%
1,429
3.64%
1,280
3.26%
7,071.8
18.01%
7,389.8
18.82%
(569)
-1.45%
1,739
4.43%
5081.0
12.94%
1732.11
34.09%
3,348.9
8.53%
1,280.1
3.3%
1,146
2.9%
5,775.4
14.7%
52,443
133.6%
23,077
58.8%
29,367
75%
1,897
1,499.96
3.82%
247.4
0.63%
2,131
1,444
4,564
11.11%
1,495
3.64%
1,339
3.26%
7,399.3
18.01%
7,732.1
18.82%
(596)
-1.45%
1,820
4.43%
5316.3
12.94%
1812.34
34.09%
3,504.0
8.53%
1,339.4
3.3%
1,200
2.9%
6,042.9
14.7%
54,872
133.6%
24,145
58.8%
30,727
75%
1,360
1,569.43
3.82%
258.8
0.63%
2,854
1,754
4,735
11.11%
1,551
3.64%
1,389
3.26%
7,675.7
18.01%
8,020.9
18.82%
(618)
-1.45%
1,888
4.43%
5514.9
12.94%
1880.03
34.09%
3,634.9
8.53%
1,389.4
3.3%
1,244
2.9%
6,268.7
14.7%
56,922
133.6%
25,047
58.8%
31,875
75%
1,148
1,628.05
3.82%
268.5
0.63%
3,224
1,798
4,877
11.11%
1,598
3.64%
1,431
3.26%
7,906.0
18.01%
8,261.5
18.82%
(637)
-1.45%
1,945
4.43%
5680.4
12.94%
1936.43
34.09%
3,743.9
8.53%
1,431.1
3.3%
1,282
2.9%
6,456.7
14.7%
58,630
133.6%
25,799
58.8%
32,831
75%
956
1,676.89
3.82%
276.6
0.63%
3,547
1,794
5,023
11.11%
1,646
3.64%
1,474
3.26%
8,143.2
18.01%
8,509.4
18.82%
(656)
-1.45%
2,003
4.43%
5850.8
12.94%
1994.53
34.09%
3,856.2
8.53%
1,474.0
3.3%
1,320
2.9%
6,650.4
14.7%
60,389
133.6%
26,573
58.8%
33,816
75%
985
1,727
3.82%
284.9
0.63%
3,653
1,676
8
2018 E
APPENDIX 3 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
Assumptions for Discounted Free Cash Flows Model
Tax Rate
34.09% Terminal Growth Rate
Risk-Free Rate
2.84% Terminal Value
30 yr Risk-Free Rate
4.16% PV of Terminal Value
Beta
1.54 Sum of PV Free Cash Flows
Market Risk Premium
7% Firm Value
% Equity
66.37% LT Debt
% Debt
33.63% Cash
Cost of Debt*
5.4% Equity Value
CAPM
13.61% Diluted Share Count
WACC
10.23% Implied Price
Terminal WACC
11.10% Current Price
Under (Over) Valued
3%
46,440
21,311
14,481
35,792
16,374
3,754
19,417
425
45.74
76
-39.8%
*: newly issued 5.375% notes due 2029
APPENDIX 4 – Beta Analysis
Beta
1.88
1.79
1.71
1.62
1.54
1.45
1.37
1.29
1.20
St. Deviation Implied Price Under (Over) Valued
2.00
$31.69
-58.30%
1.50
$34.86
-54.13%
1.00
$38.31
-49.59%
0.50
$42.10
-44.61%
0.00
$45.74
-39.81%
-0.50
$50.85
-33.09%
-1.00
$55.95
-26.38%
-1.50
$61.65
-18.88%
-2.00
$68.04
-10.47%
Beta
Standard error
3-yr m
1.61
5-yr m
1.54
3-yr wk
1.40
0.17
0.16
0.11
Bond Rating
Senior
Long-Term Short-Term Outlook
Moody’s Investors Service,A2
Inc.
Prime-1
Stable
Standard & Poor’s
A
A-1
Stable
APPENDIX 5 Revenue Analyses
6
The University of Oregon Investment Group
($ in millions, except per share data)
Net Sale
Finance and Interest
Other income
Total
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
21,489
89%
2,055
9%
538
24,082
25,804
91%
2,068
7%
566
28,438
20,756
90%
1,842
8%
514
23,112
23,297
90%
2,071
8%
518
25,886
25,627
90%
2,278
8%
569
28,474
28,190
90%
2,506
8%
626
31,322
29,881
90%
2,656
8%
664
33,201
31,674
90%
2,815
8%
704
35,193
32,624
90%
2,900
8%
725
36,249
33,603
90%
2,987
8%
747
37,337
34,611
90%
3,077
8%
769
38,457
35,649
90%
3,169
8%
792
39,610
18.09%
-18.73%
12.00%
10.0%
10.00%
6.00%
6.00%
3.00%
3.00%
3.00%
3.00%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
13,829
88%
1,925
12%
15,754
65.4%
15,068
88%
1,997
12%
17,065
60.0%
13,022
88%
1,801
12%
14,823
64.1%
21,734
88%
2,964
12%
15,861
64.2%
23,566
88%
3,213.6
12%
16,971
63.4%
25,561
88%
3,485.6
12%
18,159
62.5%
26,328
88%
3,590.2
12%
18,704
62.5%
27,118
88%
3,697.9
12%
19,265
62.5%
27,931
88%
3,808.8
12%
19,843
62.5%
28,769
88%
3,923.1
12%
20,438
62.5%
29,632
88%
4,040.7
12%
21,051
62.5%
30,521
88%
4,162.0
12%
21,683
62.5%
7,660
97%
234
3.0%
7,894
33%
434
1.8%
24,082
10,735
98%
273
2.5%
11,008
39%
365
1.3%
28,438
7,734
97%
227
2.9%
7,961
34%
328
1.4%
23,112
23,956.41
97%
740.92
3%
8,837
36%
295.2
1.5%
24,697
25,976
97%
803.39
3%
9,809
37%
401.7
1.5%
26,780
28,175
97%
871.40
3%
10,888
37%
435.7
1.5%
29,047
29,020
97%
897.54
3%
11,214
37%
448.8
1.5%
29,918
29,891
97%
924.46
3%
11,551
37%
462.2
1.5%
30,815
30,788
97%
952.20
3%
11,897
37%
476.1
1.5%
31,740
31,711
97%
980.76
3%
12,254
37%
490.4
1.5%
32,692
32,663
97%
1,010.2
3%
12,622
37%
505.1
1.5%
33,673
33,643
97%
1,040.5
3%
13,000
37%
520.2
1.5%
34,683
18.09%
-18.73%
6.86%
8.43%
8.47%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
16,454
20,985
27.5%
4,818
-4.3%
25,803
20.1%
90.7%
2,190
7.7%
445
1.6%
28,438
18,122
-13.6%
2,634
-45.3%
20,756
-19.6%
89.8%
1,930
8.4%
426
1.8%
23,112
19,934
10.0%
3,556
35.0%
23,490
13.2%
90.0%
2,140
8.2%
469.8
1.8%
26,100
21,928
10.0%
4,800
35.0%
26,728
13.8%
90.0%
2,435
8.2%
534.6
1.8%
29,698
24,120
10.0%
6,241
30.0%
30,361
13.6%
90.0%
2,766
8.2%
607.2
1.8%
33,734
25,568
6.0%
7,489
20.0%
33,056
8.9%
90.0%
3,012
8.2%
661.1
1.8%
36,729
27,102
6.0%
8,238
10.0%
35,339
6.9%
90.0%
3,220
8.2%
706.8
1.8%
39,266
27,915
3.0%
9,061
10.0%
36,976
4.6%
90.0%
3,369
8.2%
739.5
1.8%
41,085
28,752
3.0%
9,605
6.0%
38,357
3.7%
90.0%
3,495
8.2%
767.1
1.8%
42,619
29,615
3.0%
9,893
3.0%
39,508
3.0%
90.0%
3,600
8.2%
790.2
1.8%
43,898
30,503
3.0%
10,190
3.0%
40,693
3.0%
90.0%
3,708
8.2%
813.9
1.8%
45,215
18.09%
-18.73%
12.93%
13.78%
13.59%
8.88%
6.91%
4.63%
3.74%
3.00%
3.00%
growth
GEOGRAPHIC AREAS
Net sales and revenues
Unaffiliated customers:
U.S. and Canada:
Equipment Operations net sales (88%)*
Financial Services revenues (83%)*
Total
Outside U.S. and Canada:
Equipment Operations net sales
Financial Services revenues
Total
Other revenues
Total
growth
OPERATING SEGMENTS
Net sales and revenues
Unaffiliated customers:
Agriculture and turf net sales
g%
Construction and forestry net sales
g%
Total net sales
g%
%revenue
Credit revenues
%revenue
Other revenues*
%revenue
Total
growth
5,035
21,489
89.2%
2,094
8.7%
499
2.1%
24,082
Deere &Company
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 6 –NET WORKING CAPITAL PROJECTIONS
17
The University of Oregon Investment Group
($ in millions, except per share data)
Net Revenues
Current Assets
Cash and Cash Equivalents
% of Revenues
A/R
% of Revenues
Prepaid Expenses and Other Current Assets
% of Revenues
Deferred Tax Assets
% of Revenues
Total Current Assets
% of Revenues
2007
21,489
2008
25,803
2009
20,756
2010 3Q
18,803
2010
23,490
2011 E
26,728
2012 E
30,361
2013 E
33,056
2014 E
35,339
2015 E
36,976
2016 E
38,357
2017 E
39,508
2018 E
40,693
2,278.6
10.6%
21,601.1
100.5%
5,665.9
26.4%
1,399.5
6.5%
30,945.1
144.0%
2,211.4
8.6%
21,606.0
83.7%
5,657.8
21.9%
1,440.6
5.6%
30,915.8
120%
4,651.7
22.4%
21,882.9
105.4%
4,322.6
20.8%
2,804.8
13.5%
33,662.0
162%
3,753.7
20.0%
23,120.1
123.0%
5,185.6
27.6%
2,592.5
13.8%
34,651.9
184%
4,698.0
20.0%
24,194.8
103%
5,402.7
23%
1,996.7
8.50%
36,292.2
155%
3,715.2
13.9%
27,529.9
103%
6,147.5
23%
2,271.9
8.50%
39,664.5
148%
4,220.2
13.9%
31,271.8
103%
6,983.0
23%
2,580.7
8.50%
45,055.7
148%
4,594.8
13.9%
34,048.0
103%
7,603.0
23%
2,809.8
8.50%
49,055.6
148%
4,912.2
13.9%
36,399.4
103%
8,128.0
23%
3,003.8
8.50%
52,443.5
148%
5,139.7
13.9%
38,085.4
103%
8,504.5
23%
3,143.0
8.50%
54,872.5
148%
5,331.6
13.9%
39,507.9
103%
8,822.2
23%
3,260.4
8.50%
56,922.1
148%
5,491.6
13.9%
40,693.1
103%
9,086.8
23%
3,358.2
8.50%
58,629.7
148%
5,656.3
13.9%
41,913.9
103%
9,359.4
23%
3,458.9
8.50%
60,388.6
148%
6,393.6
25%
169.2
0.7%
5,371.4
26%
55.0
0.3%
5,855.5
31%
161.3
0.9%
6,107.4
26%
117.5
0.50%
6,949.3
26%
133.6
0.50%
7,893.9
26%
151.8
0.50%
8,594.6
26%
165.3
0.50%
9,188.2
26%
176.7
0.50%
9,613.8
26%
184.9
0.50%
9,972.9
26%
191.8
0.50%
10,272.1
26%
197.5
0.50%
10,580.2
26%
203.5
0.50%
171.8
0.7%
167.3
0.8%
133.2
0.7%
187.9
0.80%
213.8
0.80%
242.9
0.80%
264.5
0.80%
282.7
0.80%
295.8
0.80%
306.9
0.80%
316.1
0.80%
325.5
0.80%
8,520.5
33%
15,255.1
59.1%
7,158.9
34%
12,752.6
61.4%
7,485.7
40%
13,635.7
72.5%
8,926.2
38%
15,339.0
65%
10,156.7
38%
17,453.4
65%
11,537.2
38%
19,825.7
65%
12,561.4
38%
21,585.8
65%
13,428.9
38%
23,076.5
65%
14,050.9
38%
24,145.4
65%
14,575.7
38%
25,047.2
65%
15,013.0
38%
25,798.7
65%
15,463.4
38%
26,572.6
65%
Current Liabilities
A/P
5632.2
% of Revenues
26%
Accrued Revenue Share Obligation and Rebates 136.5
% of Revenues
0.6%
Accrued Payroll and Benefits
% of Revenues
Other Accrued Expenses
183.4
% of Revenues
0.9%
Deferred Revenue
% of Revenues
Deferred Purchase Consideration
% of Revenues
Current Portion of N/P
% of Revenues
Current Portion of Finance Obligation
9969.4
% of Revenues
46%
Total Current Liabilities
15,921.5
% of Revenues
74.1%
Deere &Company
University of Oregon Investment Gr oup
http://uoig.uoregon.edu
APPENDIX 7 – SOURCES


Deere & Co. , Caterpillar, CNH, Komatsu, Cummin Inc. and Lindsay Co.’s10k, 10Q’s
Deere & Co.’s website

Yahoo!Finance

Bloomberg

Wall Street Journal

Cameron Patrick’s 2009 Report
18