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

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

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!