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

Valuation

Deere currently trades for 12.3 times TTM earnings, which I think is an absolute bargain, both because of the earnings growth projected for the company and the ambitious share buybacks of recent years.

Deere reported 2012 EPS of $7.63, which are expected to grow over the next three years to $8.36, $8.80, and $9.30, for a 3-year average annual growth rate of 6.9%.  As a rule of thumb, I like stocks that trade for an earnings multiple that is less than twice the growth rate, and Deere certainly meets that qualification.

As far as the buyback goes, Deere has spent approximately $3 billion in the past three fiscal years to lower the number of outstanding shares from 428.6 million to 387.9 million, a reduction of 9.1%.  Combined with the earnings growth rate, this should be a great catalyst for increased value in the future.

When Deere reports next week, pay particular attention to the company’s guidance for this year’s earnings, which are more important to the stock than this quarter’s number.  If the company sees earnings coming in higher than expectations, it could be a tremendous positive catalyst.  On the other hand, I believe in Deere long term, so an earnings miss could create a nice buying opportunity in the best farm equipment company in the world.

The article Industry Leader With Growth and a Great Buyback Plan originally appeared on Fool.com and is written by Matthew Frankel.

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