Can Deere & Company (DE) Sustain Its Debt?

Deere & Company (NYSE:DE)  could be one of the best stocks to own for the next 100 years. The company is involved in the manufacture and production of food and cutting of timber, two services that people will always need.  Even if we stop eating food and chop down all of the trees in the world, I believe the company would still find another market to supply.

That said, there is one thing that worries me about John Deere: the company’s rapidly growing pile of debt.

Deere’s long-term debt has grown 60% over five years. In addition, net debt has grown 37%, which is surprising considering how profitable Deere has been in the past few years.

Should I be worried about this growing debt?

Compared to Deere’s closest competitor Caterpillar Inc. (NYSE:CAT) , Deere’s net debt is growing rapidly. Joy Global Inc. (NYSE:JOY) , my favorite equipment manufacture on the market, has also increased its debt, but as I have covered below it’s the net debt to EBITDA ratio that reveals the most about these firms.

This chart, constructed from the table above, highlights the rising debt of Deere. Deere’s cash pile is growing as well; however, it is not growing faster than debt, resulting in a rapidly rising net debt position as the company borrows money faster than it can pay it off.

Caterpillar’s debt profile shows a different picture. While Deere & Company (NYSE:DE) is increasing net debt faster than its cash balance, CAT’s net debt pile is falling as the company reduces short term debt and improves its cash position.

In comparison to both CAT and DE, JOY has a great debt profile. The company had a net cash balance of $800 million 2010 and this strong cash balance has offset the majority of the company’s debt over the past five years. However, after recent acquisitions JOY’s net debt has grown leaving the company with a smaller cash balance and a $1 billion net debt position.