The second quarter of Deere & Company (NYSE:DE)’s fiscal year ended in April, with the company experiencing a 9% increase in revenue versus a year earlier but only a 3% rise in earnings as net margins declined. During the quarter (and during fiscal Q1 as well), growth was driven by the agriculture and turf business, where a double-digit percentage increase in sales offset declines in the much smaller construction and forestry segment. Deere & Company (NYSE:DE) has been buying back shares, and so earnings per share did increase at a somewhat faster rate. The good Q2 numbers built on good performance during the first quarter of the fiscal year, to the point that the six-month period as a whole saw 13% EPS growth from levels a year ago. There has been a large buildup in receivables and inventory, with cash flow from operations being negative as a result, but that appears to be seasonal in nature.
At its current market capitalization of $32 billion, Deere & Company (NYSE:DE) trades at 10 times trailing earnings- fairly cheap considering the recent financial performance. Some analysts believe that agriculture is poised to be a growth industry as the world population grows and as richer populations in developing countries consumer more meat (which is more agriculturally intensive to produce), which could help Deere & Company (NYSE:DE) as well as its peers. Consensus forecasts are for moderate earnings growth going forward, as shown by the forward P/E of 9 and a five-year PEG ratio of about 1.
We maintain a database of quarterly 13F filings from hedge funds and other notable investors, primarily to help us in developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average (excess return of 18 percentage points per year) but also to track interest among hedge funds in individual stocks. Warren Buffett’s Berkshire Hathaway owned close to 4 million shares at the end of March (see Buffett’s stock picks) according to the holding company’s filing, while billionaire Mario Gabelli’s GAMCO Investors reported a position of 1.5 million shares (find Gabelli’s favorite stocks).
Other agricultural equipment companies include AGCO Corporation (NYSE:AGCO) and Lindsay Corporation (NYSE:LNN). Similarly to Deere & Company (NYSE:DE), AGCO has been experiencing higher revenues but not quite as good results in terms of net income (in fact, earnings fell slightly in its most recent quarter compared to the same period in the previous year). The company is valued at 10 times its trailing earnings, in line with Deere & Company (NYSE:DE). Lindsay features a premium to these companies, with trailing and forward P/Es in the teens, though recent reports have shown impressive improvements on both top and bottom lines. Still, a number of market players are bearish as shown by the fact that 22% of the float is held short.
