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Deere & Company (DE), Caterpillar Inc. (CAT), AGCO Corporation (AGCO): Is This Century Old Company of Choice For Both Farmers and Investors?

Looking ahead, international expansion and new products sales are key growth initiatives. Its operations outside the U.S. and Canada still account for less half of total sales; while Deere has put a higher emphasis on research & development, with R&D as a percent of sales rising from about 2.0% in 2000 to above 5.5% in 2012.

Peer comparison

Deere’s peers include Caterpillar Inc. (NYSE:CAT) and AGCO Corporation (NYSE:AGCO).

Caterpillar Inc. (NYSE:CAT) is one of the largest manufacturers of construction and mining equipment globally. Its profit per share for the first quarter fell by 45% year-on-year to $1.31 as a result of weak economic growth affecting end-user demand and production. In view of this, management revised the mid-point of its full year fiscal 2013 earnings outlook from $8.00 per share to $7.00 per share.

Similar to Deere, Caterpillar Inc. (NYSE:CAT)’s strong brand names and extensive dealer network have been contributing factors for its success. However, its expansion into mining equipment sales have increased Caterpillar Inc. (NYSE:CAT)’s exposure to the volatility of global commodity prices. Its mining business accounted for about 17% of its fiscal 2012 revenues. Reduced demand for Caterpillar Inc. (NYSE:CAT)’s mining equipment are the likely consequences of depressed commodity prices and lower mining capital expenditure.

AGCO Corporation (NYSE:AGCO) is a manufacturer of agricultural machinery such as tractors, hay tools, sprayers, grain storage & protein production systems and replacement parts. It distributes its products through more than 3,000 dealers in over 140 countries globally, under its five flagship brands: Challenger, Fendt, Massey Ferguson, Valtra and GSI.

AGCO Corporation (NYSE:AGCO)’s results for the first quarter were unsatisfactory with quarterly earnings per share down from $1.21 a year ago to $1.19. Going forward, management guided for full year 2013 earnings per share to grow to a range of $5.50 – $5.70 from $5.30 in 2012.

I am negative on ACGO, given its concentration of revenues in Western Europe, representing about half of its total sales. Farmers in Europe have been deferring their investments in new agricultural equipment in view of the weak macro environment.

Conclusion

I like Deere for its consistent gross margins, strong operational efficiency and shareholder friendly capital return policies. At 11 times forward P/E and 0.9 times PEG, Deere is attractively valued and warrants a buy in my book.

The article Is This Century Old Company of Choice For Both Farmers and Investors? originally appeared on Fool.com.

Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark 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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