Deere & Company (DE): Industry Leader With Growth and a Great Buyback Plan

Page 1 of 2

The world’s largest farm equipment manufacturer, Deere & Company (NYSE:DE). has proven itself to be a great investment in the economic recovery, having gone from its 2009 low of $24.51 to its current level in the mid-90’s, for a gain of over 275% in just 4 years.  While I can never seem to say “I wish I had bought more stocks in early 2009!” enough, Deere is a shining example of the opportunities that fear in the markets can create.

During the recession, Deere’s earnings decreased during only one year (2009), and not by too much.   In fact, for the past two years, Deere did more sales volume than it ever did before, even in the booming years leading up to the recession.  Deere is set to report its first quarter earnings of fiscal year 2013, so will this set the tone for another record-breaking year for the company, or is growth going to fizzle out?

Deere & Company (NYSE:DE)Profile

Deere has evolved to become a truly international farm equipment company, deriving over 40% of its sales from outside of North America.  The vast majority of Deere’s revenue comes from its agriculture division, which includes their famous tractors as well as virtually any other heavy farm equipment you can think of.  The rest comes from construction and forestry equipment (18%) and financial services (7%) which makes its money financing equipment through the company’s dealers.

Closest competitors and Deere’s advantage

While Deere is the largest manufacturer of farm equipment in the world, there are several significant competitors.  The two closest direct competitors are CNH Global NV (ADR) (NYSE:CNH) and AGCO Corporation (NYSE:AGCO).  Always a threat to Deere because of their size is Caterpillar Inc. (NYSE:CAT), which Deere competes with primarily on construction equipment.

AGCO is on a similar uptrend, revenue-wise, however there are a few reasons I would rather be invested in Deere.  Other than the fact that Deere is the biggest, which offers its own advantages (see below), Deere has as much cash on hand as debt, as opposed to a net debt of over $700 million for AGCO.  They also have not had any significant share buybacks lately.  CNH Global, the larger of the two, also has not bought back shares (there are actually more outstanding shares than a few years ago). They do have a good cash position, however, making them the best of the two competitors, from an investment perspective.

Caterpillar is the largest heavy equipment company in the world, with a market cap about twice that of Deere.  The company does not manufacture farm equipment, however they are the largest competitor to Deere in terms of construction equipment.  I like Caterpillar as an investment, and have written about them before.  I believe they are a great play if you believe that construction spending is going to continue to grow worldwide.  The only major issue I have with Caterpillar is the massive amount of debt the company has (about $25 billion) and less than $2 billion of cash on hand.  I only mention this to caution investors who may see that Caterpillar trades at a cheaper multiple, while expecting higher growth than Deere.  Debt will do that to a company.

Deere has the competitive advantage of being several times larger than any of its direct competitors, which allows it to use economies of scale to manufacture, transport, and sell its equipment with greater efficiency than smaller companies.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

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!