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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. - PowerPoint PPT Presentation
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Deere & Company
Yen-Hua Huang (Gina)
Cheng- Yuan Huang
Yu-Te Hung (Ted)
Te-Chi Kuo (William)
Presented: April 12, 2012
AgendaOverview
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 Stock Price Forward P/E EPS
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
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 mid-century 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
Tractor Model D
Wheeled Feller Buncher
Cotton Picker
Rice Binder Sub-compact Utility Tractor
Source from Deere website
A Glance at the Company and Its Business
-Basic Description
-Construction & Forestry segment offers utility equipment and related parts
Source from Deere website
Earthmoving contractor and road builder
Power Shovel
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 RatiosCompany's
NameTicker
Stock Price
Forward P/E
EPS EBIT/TA EBIT/EV
Deere & Company
DE 79.34 9.6 6.75 13.00% 8.61%
Caterpillar Inc.
CAT 105.87 9.35 7.4 13.78% 7.03%
CNH Global NV
CNH 41.04 8.83 3.91 7.62% 8.91%
Kubota Corporation
KUB 47.83 14.15 2.59 8.84% 7.46%
AGCO Corporation
AGCO 45.55 8.61 5.95 12.32% 7.33%
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%
Multiples
Joel Greenblatt
(in million)
(In thousand
s)EBIT
TangibleAssets
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%
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
Source form Deere 2010 annual report
Receivable :
1. Required return
Financial Projections
Current SharesShares Outstanding 403390000.0Current Share Price $79.34 2012/4/12
CapitalBeta 1.41Equity Value 32,004,962,600 Debt 26,589,600,000 Leverage (Debt/equity ratio) 83.08%
Rate AssumptionsTax Rate 34.00%Risk Free Rate 5.00%Market Risk Premium 6.00%Cost of Debt 2.85%
Required ReturnsEquity Return 13.46%WACC 8.21%default risk premium 3.00%Required Returns 11.21%
2. Growth rate
3. Key assumption(A1 and A2 sheet)
Financial Projections
DCF Model
Application of Valuation Tools
Price Weight Price Base 96.67 33% 31.9011 Downside 68.96 33% 22.7568 Upside 126.11 33% 41.6163
96.2742
Recommendation:
Buy 100 shares @market price
Current Price $79.34 (04/12/2012)
DCF Price $96.27
Multiple Price $85.12
Target Price $94.04
Thank you !
Q&A