Is Deere & Company (DE) Worth Having in Your Portfolio?

As seen, Deere is in the middle of the pack in this category. Joy’s profit margin is much higher at nearly 20.5%. Caterpillar’s profit margin was the lowest at 9.2% in the first quarter of 2013.

Let’s turn to valuation.

Valuation

Let’s examine the above-mentioned companies’ value to get a better understanding of their market value compare to the industry average. To that end, let’s analyze these companies’ enterprise value (EV) and their EV to EBIT ratio.

The table below presents the summary of data of all three companies and the average machinery industry.

This type of calculation considers these companies’ different financial structures, including their debt and cash. The yearly EBIT is based on the last four quarters. Based on the above, Deere and (NYSE:DE) Caterpillar’s EV to EBIT ratio is very close to the industry average. On the other hand, Joy Global has a much lower EV to EBIT ratio, which is even lower than the industry average. This measurement shows a different picture than the regular P/E. The P/Es of Deere and Caterpillar aren’t much higher than Joy Global’s P/E and they were all much lower than the machinery market average. This means Deere and Caterpillar aren’t expensive or cheap, while Joy Global seems inexpensive for its industry.

The Foolish bottom line

The ongoing growth in Deere’s revenues, especially compared to other leading companies such as Caterpillar, is likely to keep Deere as a solid investment. Moreover, Deere’s current stock price isn’t high for the industry. Other heavy machinery companies such as Joy might offer a better opportunity in terms of valuation, but every opportunity also entails risk that might not fit every investor.

The article Is Deere Worth Having in Your Portfolio? originally appeared on Fool.com and is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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