Deere & Company

Yen-Hua Huang (Gina)

Cheng- Yuan Huang

Yu-Te Hung (Ted)

Te-Chi Kuo (William)

Presented: April 12, 2012

AgendaOverview

Macroeconomics

Industry Descriptions

Company Descriptions

Financial analysis and Competitors

Financial projection and Models

Recommendation

Overview:

Deere & Company, founded 1837, is an globalized company and provides products and services primarily for agriculture and forestry all over the world .

It operates in three major business segments: agriculture/ turf (A&T) , construction/forestry, & financial services.

GICS MAP 20106010 Symbol DE

Current Price 79.34 (4/12/2012)

Forward P/E 12.16

Market Cap. 32.04B Enterprise Value 57.87B

ROA 5.99% EPS 6.75

ROE 42.32% Profit Margin 8.63%

Source from Deere Mar 2012 presentation for strategy

Macroeconomic Tailwinds :

•Global population

•Global infrastructure needs

Macroeconomic Tailwinds :

Population growing in size and affluence

By 2050, world population will reach 9 billion, up from ~7 billion today, with most of population growth in Asia and Africa

More People, More Food

Source from Deere Mar 2012 presentation for strategy

Source from Deere Mar 2012 presentation for strategy

Source from Deere Mar 2012 presentation for strategy

Source from Deere Mar 2012 presentation for strategy

Sector : Industrial Goods

Industry : Farm and Construction Machinery

Farm Equipment :

Construction Equipment :

Source from IBIS world

Construction Revenue Drivers :

•the value of all non-residential construction

•Demand from mining

•The value of residential construction

Source form IBIS world

Farm revenue drivers

•Demand from crop production

•Agriculture price index

•Private spending on home improvements

Source form IBIS world

Main Competitors:

Company's Name

Ticker Stock Price Forward P/E EPS

Deere & Company

DE 79.34 9.6 6.75

Caterpillar Inc. 

CAT 105.87 9.35 7.4

CNH Global NV

CNH 41.04 8.83 3.91

Kubota Corporation

KUB 47.83 14.15 2.59

AGCO Corporation

AGCO 45.55 8.61 5.95

Relevant Stock Market Prospects

Deere & Company’s GICS code is #20106010.

Therefore, the firm majorly competes with Caterpillar Inc. (CAT),

CNH Global NV( CNH), and AGCO Corporation (AGCO).

Relevant Stock Market Prospects: Industry

Top 1st Player:

Caterpillar Inc. (CAT) accounts for 20.3% of the market share.

Top 2nd Player:

Deere & Company (DE) accounts for 7.5% of the market share.

-Caterpiller provides more comprehensive product lines, including construction & mining equipment and logging machinery

-Deere is the world’s leading manufacturer of agricultural equipment

-Both of them are Illinois-based

Relevant Stock Market Prospects

Key statistics regarding Deere and its competitors

Source: Yahoo Finance

Relevant Stock Market Prospects

- Compared with the market index

Source: Yahoo Finance

A Glance at the Company and Its Business

- Basic Description

Deere & Company manufactures and services primarily for agriculture and forestry worldwide. Agricultural output will need to double by mid-century to satisfy demand and do so from the essentially same amount of land and with even less water.

Deere & Company is consisted of:

1. Agriculture & Turf Segment

2. Construction & Forestry Segment

3. Financial Service Segment

A Glance at the Company and Its Business

-Basic Description

-Agricultural & Turf segment provides utility equipment and related parts

Tractor Model D

Wheeled Feller Buncher

Cotton Picker

Rice Binder Sub-compact Utility Tractor

Source from Deere website

A Glance at the Company and Its Business

-Basic Description

-Construction & Forestry segment offers utility equipment and related parts

Source from Deere website

Earthmoving contractor and road builder

Power Shovel

A Glance at the Company and Its Business

-Basic Description

-Financial service segment works for worldwide equipment financing, marketing and business development, agricultural financial service, and international lending.

-Deere’s interest income will be viewed as the operating assets.

-If its debt rating is downgraded, the financial service will not support Deere’s sales as before.

A Glance at the Company and Its Business

Deere’s Strategy

1. Continue to grow strong at 2nd position in North America

2. Globalize the Business

3. Improve volumes and pricing

4. Grow market share in developing market

A Glance at the Company and Its Business

A Leading Technology

Source: Deere’s website

A Glance at the Company and Its Business

Revenue by Business Segment

A Glance at the Company and Its Business

Revenue by Geographic Segment

A Glance at the Company and Its Business

Business Drivers:

- Demand from crop production

-Agricultural price index

-Private spending on home improvements

-Natural disaster index

Brief Description of Deere’s Competitors:

Caterpillar Inc. : world’s leader of manufacturer of construction and mining equipment.

CNH Global NV: important manufacturer of agricultural and construction equipment.

Kubota Corporation: Japan’s leader of manufacturer of agricultural and construction equipment

AGCO Corporation: Europe-based manufacturer of agricultural equipment

CAT

CNH

KUB

AGCO

Financial RatiosCompany's

NameTicker

Stock Price

Forward P/E

EPS EBIT/TA EBIT/EV

Deere & Company

DE 79.34 9.6 6.75 13.00% 8.61%

Caterpillar Inc. 

CAT 105.87 9.35 7.4 13.78% 7.03%

CNH Global NV

CNH 41.04 8.83 3.91 7.62% 8.91%

Kubota Corporation

KUB 47.83 14.15 2.59 8.84% 7.46%

AGCO Corporation

AGCO 45.55 8.61 5.95 12.32% 7.33%

DE CAT CNH KUB AGCO Industry

Ave.

Market Cap 32.88B 68.55B 9.84B 12.01B 4.43B 2.14B

Current P/E 12.12 14.31 10.5 18.47 7.66 10.15 12.61

Forward P/E 9.6 9.35 8.83 14.15 8.61 N/A 10.11

Prof. Margin 8.63% 8.19% 4.89% 5.44% 6.65% 7.38% 6.76%

P/B 4.82 5.34 1.21 1.55 1.49 2.2 2.88

P/S 1 1.14 0.5 0.99 0.51 0.9 0.83

ROE 5.99% 6.16% 4.17% 4.35% 6.00% 4.65% 5.33%

ROA 42.32% 40.29% 12.07% 8.60% 20.57% 14.00% 24.77%

Multiples

Joel Greenblatt

(in million)

(In thousand

s)EBIT

TangibleAssets

EV EBIT/TA EBIT/EV SUM

DE 4.98 47.08 56.91 13.00% 8.61% 21.61%

CAT 7.12 69.99 99.84 13.78% 7.03% 20.81%

CNH 1.94 31.01 21.45 7.62% 8.91% 16.53%

KUB 1.12 16.37 14.75 8.84% 7.46% 16.3%

AGCO 0.59 5.40 5.17 12.32% 7.33% 19.65%

Source: Yahoo. Finance

Dupont Analysis

Dupont Ratio

2008 2009 2010 2011

Profit Margin 7.96% 4.21% 7.95% 9.53%

Total Asset Turnover

66.62% 50.46% 54.48% 61.12%

Equity Multiplier

592.50% 852.02% 686.42% 707.38%

ROE 31.42% 18.10% 29.73% 41.20%

Liabilities Breakdown

Assets Breakdown

Source form Deere 2010 annual report

Receivable :

1. Required return

Financial Projections

Current SharesShares Outstanding 403390000.0Current Share Price $79.34 2012/4/12

CapitalBeta 1.41Equity Value 32,004,962,600 Debt 26,589,600,000 Leverage (Debt/equity ratio) 83.08%

Rate AssumptionsTax Rate 34.00%Risk Free Rate 5.00%Market Risk Premium 6.00%Cost of Debt 2.85%

Required ReturnsEquity Return 13.46%WACC 8.21%default risk premium 3.00%Required Returns 11.21%

2. Growth rate

3. Key assumption(A1 and A2 sheet)

Financial Projections

DCF Model

Application of Valuation Tools

Price Weight Price Base 96.67 33% 31.9011 Downside 68.96 33% 22.7568 Upside 126.11 33% 41.6163

96.2742

Recommendation:

Buy 100 shares @market price

Current Price $79.34 (04/12/2012)

DCF Price $96.27

Multiple Price $85.12

Target Price $94.04

Thank you !

Q&A