REAL CLIENT MANAGED PORTFOLIO INVESTMENT RECOMMENDATION
TO: Real Client Managed Portfolio, Spring 2012
FROM: Yen-Hua Huang (Gina) ,Cheng- Yuan Huang ,
Yu-Te Hung (Ted), Te-Chi Kuo (William)
DATE: April 12, 2012
SUBJECT: Deere & Company (DE)
Recommendation: Buy 100shares @market price
Industry and Macroeconomics
Deere & company, the globalized farm machinery manufacturer, rests on the farm and Construction machinery industry. It will relate to two macroeconomic index, Global population and Global infrastructure needs. The key revenue drivers in the industry are the value of all non-residential construction, private spending on home improvements and demand from crop production. Through the growing population size and the growing urbanization, it makes Deere’s business have a better performance than before and better than the performance of industry.
Company Overview
DeereCompany, founded at 1837, is a globalized company and provides products and services primarily for agriculture and forestry all over the world. Its industry rests on the Farm and Construction Machinery industry. There are business segments: agriculture/ turf (A&T), construction/forestry, & financial services. Deere &Co is a big cap stock with market caps around 32.04 billion in the Construction & Farm Machinery & Heavy Trucks industry under the industry Machinery sector.
Business Strategy
Deere &Co. mainly focus on producing agricultural and constructional equipment. The other business, financial services primarily provides credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. Moreover, Deere launches a new technology, called John Deere Farm Sight. This wireless technology is that a farm owner can monitor and manage his farm at home or at office. In the current future, the company will focus on the following strategy, continuing to grow strong at 2nd position in North America, globalize the Business, improving volumes and pricing and growing market share in developing market. Deere has four competitors who are Caterpillar Inc., CNH Global NV, Kubota, and AGCO respectively. Compared with financial ratios with its competitors, Deere has better EPS, EBIT/TA, profit margin, P/B, P/S, and ROA. When we take the average of P/E ratios of the direct competitors, the P/E ratio is 12.61 so that the implied stock price of Deere would be 85.12.
Recommendation
By using the DCF mode, the stock price of Deere is 96.27. Through comparable multiple approach, the implied value would be 85.12. After applying weight average between two methods, the fair value we calculated is 94.04. The closing price on April 12, 2012 was $79.34. Therefore, we recommend purchasing 100 shares of DE.