Deere & Company (NYSE:DE)

CAPS Rating: 4 out of 5

The Company operates in 4 segments: agricultural equipment segment, commercial and consumer equipment segment, construction and forestry segment, and credit segment.

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Member Avatar timmysweets (64.33) Submitted: 10/16/2014 1:02:49 AM : Outperform Start Price: $83.68 DE Score: -3.42

10 dtc. big dip. dropped 94 to 80 since april. called 40% undervalued. 9 p/e. Jumped to 85. Short squeeze

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Member Avatar TerryB103 (69.80) Submitted: 10/13/2014 2:42:29 PM : Outperform Start Price: $82.63 DE Score: +1.55

I'm rating this as Outperform just on the P/E ratio. I don't like the debt, and cannot seem to pull the trigger and acually buy Deere. Back in college I worked for them in a temporary spot. Great products, great brand, and super dividend. But cyclic...and I just can't make myself push..."buy".

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Member Avatar walkie518 (66.83) Submitted: 10/10/2014 2:42:11 PM : Outperform Start Price: $81.54 DE Score: +3.98

More of a parts/servicing company for ag than given credit. This partially disclosed element of the business provides far more stability than the competition and food tailwinds should persist well into the future. Finance arm is incredibly strong. Construction/Forestry is growing at double-digits. Deere is ~80% US, imagine what would happen if they marketed expanded the brand?

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Member Avatar NechesInvst (99.61) Submitted: 10/2/2014 10:16:02 AM : Outperform Start Price: $81.26 DE Score: +5.42

With the low PE, and decent dividend, I'm hoping that DE is close to a bottom. If we're in a recovery (or have recovered), this may take flight soon.
No personal money in this one.

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Member Avatar 20Punches (59.11) Submitted: 10/1/2014 7:21:01 PM : Outperform Start Price: $81.60 DE Score: +5.34

Punch #13 – DE

DE has the 3 big things I like to see: 1) A consistent, multi-decade history of mouthwatering economics, 2) a dominant, wide-moat position in a critical industry that is unlikely to be disrupted (meaning those past mouthwatering economics are likely to continue into the future), and 3) an attractive price.

Take a look for yourself at DE over the past 20 years: High ROE, solid growth, decreasing share count, etc. Deere is an iconic brand, and the undisputed king of agricultural machinery. They also have decent, but not nearly as good, segments in construction, forestry, and home lawn care. The global need for those industries is not going away anytime soon.

Now, against my better judgment, I’m gonna nerd out on price…

As far as price, depending on the discount rate you use, DE is priced for basically ZERO growth. Specifically, at an 11% discount rate, assuming zero growth, DE would be worth about $82.63. DE is currently selling for $81.60. I don’t really use DCF’s to be an exact valuation, but more of a sanity check…that’s why Buffett says if you need to use a detailed DCF analysis, then the stock isn’t cheap enough.

I just played around with a reverse DCF (I like reverse DCF’s much more than normal DCF’s), inputting the current stock price, and fiddling with reasonable range of discount rates, a 0% perpetuity growth rate after year 10, looking to see what growth rate is currently “baked in” to Deere’s current price. The results were this: depending on a range of discount rates between 7% and 13%, DE is basically priced at an expected future EPS growth rate between -6.2% and 2.57% over the next 10 years, and assuming 0% growth after those 10 years.

Pardon, the silly finance math, the real point here is that anyone who knows DE knows that DE is going to grow EPS at more than 2.57% annualized over the next 10 years, and will probably keep growing well after that. I don’t know what rate DE will grow at…maybe 5%?, maybe 8%?, maybe more? But, I do believe that, in the long run, the probability is that it will be way more than 2.5%...therefore DE is underpriced. You don’t need super exact estimates when a DOMINANT business is this cheap…just like Buffett says…you just need to recognize a really WACKY low baked-into-the market-price growth assumption.

Perhaps ironically, I actually expect DE’s EPS to drop over the next couple years since their margins and profitability are SO high right now…you can argue that DE’s ‘normalized earnings are closer to $7 per share (so we’re still talking a “normalized” PE under 12) but over the long run, say 10 years, I can’t see an annualized growth rate under 4%-5%. Otherwise stated, I can’t see DE having normalized EPS under $12 in 10 years…and I doubt that along that growth trajectory, DE won’t sell for 14x normalized earnings or more, at at least few points along that road. What THAT means, to me, is that it’s really hard to in vision a world where DE stock grows at LESS 7% annualized or more, at some point, over the next decade + you get your nearly 3% dividend as well. So maybe a total return around roughly 10% over the next decade…which is likely going to be much higher than the S&P 500.

Sorry for the long-winded pitch. At the end of the day, this seems to me to be another asymmetrical long-term bet, especially compared to the S&P 500. DE to outperform.

And full-disclosure, I probably screwed this portfolio over by picking COH and WU to hold forever. I didn't realize how vulnerable to competition they both are or were, especially COH.

The key lesson here is that finding businesses with great economics is easy. Finding businesses that are cheap is pretty easy. But, finding businesses that can keep their moat wide 10+ years from now…that is HARD. That is the secret sauce that made Buffett a billionaire, and that is the skill that needs to be mastered to get his kind of long-term returns.

When moats and fundamentals breakdown, and a great business transitions into just a decent business, you can usually expect to get creamed, especially if you bought them at not-really-cheap prices.

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Member Avatar StoxValue (59.55) Submitted: 9/30/2014 3:52:30 PM : Outperform Start Price: $82.03 DE Score: +5.97

Cash flow-based intrinsic value of the business @ $170/share http://www.stoxvalue.com/de-deere-and-co-intrinsic-value/

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Member Avatar afewgoodstocks14 (29.65) Submitted: 9/30/2014 1:15:22 PM : Outperform Start Price: $82.24 DE Score: +7.28

Div. (Yield) $2.40 (2.9%)

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Member Avatar Staka (97.74) Submitted: 9/21/2014 2:19:18 AM : Outperform Start Price: $82.78 DE Score: +6.55

Positive:
- There market might be sluggish going forward for the next 1-2 years but much of that is already priced into the stock.
- Good dividend, sustainable with low payout ratio.
- Management is quickly adapting workforce to changing conditions to keep costs reasonable and protect margins.

Negative:
- High debt levels (for vendor financing) might get problematic in a recession.

Category: PVm

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Member Avatar rayoc (< 20) Submitted: 9/12/2014 11:55:35 AM : Underperform Start Price: $81.29 DE Score: -7.94

DE is an American Icon, it ranks along the lines of Harley Davidson and Coke in rural America. That being said, even icon's slump. They have diversified and that will help (construction, precision Ag equipment, etc.) however, they have had an unprecedented run. Many farmers will not need to update equipment for 5+ years and with current margins being close to zero, they won't be worried about taxes. There are ten's of thousands of excellent used pieces of equipment on dealer lots that will keep the market supplied for years to come if need be. New stuff WILL slow down in a big way the next few years. I would not be surprised to see DE get back into the $6X's.

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Member Avatar wowdwarf2 (< 20) Submitted: 8/29/2014 3:31:41 PM : Outperform Start Price: $83.38 DE Score: +5.90

worlds stomach is growing and Deere pays a Div while playing off that mega trend

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Member Avatar MBDixieBlue (79.46) Submitted: 8/22/2014 8:24:12 PM : Underperform Start Price: $85.00 DE Score: -3.82

Ag Equipment Sales entering a down cycle after several years of record sales.Too much inventory on dealers lots . Deere will have to slow production for a while until the pipeline clears.

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Member Avatar MightyMinnow (41.74) Submitted: 8/22/2014 9:15:21 AM : Outperform Start Price: $85.05 DE Score: +3.38

knife collection.

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Member Avatar starz188TEST (61.27) Submitted: 8/13/2014 10:58:28 AM : Outperform Start Price: $84.72 DE Score: +1.48

Part of a screener test. I looked at 4-5 star stocks, with a dividend yield above 2.5%, gross margins above 25%, price 0-50% below 52-week high, with 3-year EPS of 5+, P/E < 40. These are all interesting PEGY plays for me.

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Member Avatar WPThatcher (35.27) Submitted: 8/13/2014 10:39:07 AM : Underperform Start Price: $84.20 DE Score: -1.95

Bad earnings and it looks like '15 and '16.

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Member Avatar BBRAF (< 20) Submitted: 7/27/2014 3:23:15 PM : Outperform Start Price: $87.61 DE Score: -45.90

DE is a solid co.It is going to be rewarding but I have to admit it has been trying.Buying more!

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Member Avatar afewgoodstocks11 (24.65) Submitted: 7/15/2014 2:09:58 PM : Outperform Start Price: $80.78 DE Score: -2.04

Div. (Yield) $2.40 (2.7%)

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Member Avatar OKwarrior (39.62) Submitted: 6/27/2014 2:13:21 PM : Outperform Start Price: $89.72 DE Score: -3.69

dominant company in a growing industry. Financials are solid. Growth is steady and they are trading at relatively low multiples.

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Member Avatar JPictor1 (51.00) Submitted: 6/20/2014 2:21:10 PM : Outperform Start Price: $90.36 DE Score: -8.41

6/20/2014 - GPM 30%; EBIT/MC = 18.7%; LTDebt/Net Inc = 6.1

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Member Avatar Johnybe (65.44) Submitted: 5/14/2014 9:46:28 PM : Outperform Start Price: $89.83 DE Score: -7.18

World Class quality products and management

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Member Avatar SqwiiTrader (< 20) Submitted: 5/7/2014 5:56:02 PM : Underperform Start Price: $86.56 DE Score: -1.43

Tom demark monthly SELL 13 signal

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