Deere & Company (DE), AGCO Corporation (AGCO): Are You Prepared This Time?

Page 1 of 2

Editor’s Note:
This version has been modified to address CNH Global NV (NYSE:CNH) Global’s price appreciation.

Last year’s drought brought upon a massive destruction of crop yield, which sent crop prices to 6 year highs. This year is turning no different, as the weather reports suggest that last year’s drought may very well continue in 2013. This would certainly send fertilizer companies soaring, but agricultural equipment providers like Deere & Company (NYSE:DE). could have a hard time ahead.

Deere & Company (NYSE:DE)Since cash flows from selling crops had plunged last year, farmers had little to spend on their farm equipment. If the drought continues this year as well, farmers would again abstain from purchasing the equipment, thus extending the bad times for agricultural equipment manufacturers. As a matter of fact, the street was extending normal weather in 2013 following which shares of Deere & Company (NYSE:DE) had risen by nearly 40% since September. But after drought reports popped out in February, its shares tumbled by more than 10% and are continuously declining.

Deere & Company (NYSE:DE) is the world’s largest agricultural equipment manufacturer around the world, and dons a market cap in excess of $34 billion. It derives around 40% of its revenue from international sales (mainly India and China), while the U.S accounts for just over 50% of its sales. But China and India are also witnessing continued drought and the crop yields are continuously being destroyed. With agricultural revenue under pressure, there isn’t much to be excited about agricultural equipment manufacturers.

The savior(s)

But not all companies are expected to have a tough time. AGCO Corporation (NYSE:AGCO) derives 70% of its sales from Europe and South America, which are expected to have normal weather conditions. As it happened last year, the drought in the U.S, India, and China drove up international crop prices and farmers in the rest of the world had a fantastic year. This was followed by strong sales of agricultural equipment in Europe and South America, and as a result, AGCO reported a 53% surge in its quarterly profits. Since the weather cycle seems to be repeating itself, AGCO Corporation (NYSE:AGCO) could have another blockbuster year. Analysts estimate its annual EPS to grow by 12.5% for the next 5 years.

CNH Global NV (NYSE:CNH) also stands to benefit here. The company derives most of its revenue from Europe and it has been reporting fantastic results over the last year. At the current price, its shares appear to be undervalued with a forward P/E of 8 and a PEG of 0.75, suggesting that its shares are deeply undervalued.

But it’s not just about impressive numbers. In the previous quarter, CNH Global NV (NYSE:CNH) spent over $240 million on capacity expansions in India, China, Brazil, Russia and Argentina. Additionally, the company spent $194 million on Tier 4 product expansions that are expected to be completed by 2015 and would play a vital role in refreshing its product lineup. Furthermore, its upcoming manufacturing facilities in Argentina and China are expected to be operational in FY14 and FY13, and allow the company to meet up with the rising demand.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!