The John Deere (DE) portfolio of businesses is varied. Two of the business groups – Agricultural and Construction equipment – are in an excellent position to take advantage of global growth. Two additional business groups – Turf and Forestry equipment – support and enhance worldwide channel development. And additional supporting business groups – Financial Services, Power Systems, Parts Services, and the Intelligent Solutions Group – strengthen and differentiate its equipment businesses.
DE is currently trading at $79.92, which is at a discount of $19.47 (19.59%) to its 52 week high. Its key financial statistics are EPS of 6.08, PE of 13.30, Div Rate of 1.64, and a market capitalization of 33.53 Billion. If we look to DE’s historical performance over the last 5 years it has proven to be a consistent performer in growth during one of the most troubled economic periods since the great depression. DE has consistently traded in a strong upward growth trend between 2006 through to early 2008. Like the majority of market players, it suffered a significant reduction in its stocks value during the global financial crisis of 2008 – early 2009, before it recommenced trading in a strong upward growth pattern from early 2009 through to April 2011, where it again experienced a downwards price adjustment in line with the rest of the market.
In terms of its recent market trading the downtrend hasn’t (as yet) been as severe as 2008.The stocks appears to have found resistance at around $68 per share at the bottom trading range, and is currently testing an upper resistance level of around $80 per share. It is demonstrating its strongest indications to date of re-entering a strong upwards growth trend, but this will be dependent upon the company’s performance over the next quarter, and the financial management decisions taken on the economy by the fed over the next quarter.
During its Q3 2011 Earnings Call on August 17th, DE’s management outlined the company’s positive performance in trying market conditions, with earnings climbing 15% during the quarter and net sales and revenue up by 18% for the quarter. Global net sales were also up by 24% for quarter on quarter performance. Management also predicts it will meet its target of 20% increase in sales over the fourth quarter.
Key positive factors affecting its ongoing growth for products is based around increasing demand for farming equipment for agricultural food production to feed a growing global population, continued demand for construction equipment utilised in the mining and forestry industries (demand domestically and abroad), and ongoing demand for construction and power equipment to meet infrastructure development requirements and national responses to more frequent natural disasters. In addition to this it has smaller sideline business units from commercial through residential that help to underpin consistent cash flow.
DE’s biggest challenge in the near term and in meeting its sales targets remains the poor performance of the United States economy and the slump in performance and value of the US dollar. This places pressure on its export sales revenue streams, however in some industries it may provide an increase in sales for certain product lines (eg: cashed up mining companies overseas buy additional equipment while the dollar is low and capital purchases are cheap by historical terms). To remain competitive and to control revenue and cash flow, DE management will need to tightly control production, sales and spare parts costs.
I believe the company has a strong track record and has continued to demonstrate its ability to perform in tough economic markets. It is being tested again, and its business model that has grown revenue and capital growth over the last three years, continues to provide the basis for the company to drive forward. It has very good prospects for capital growth over coming years, and its historical dividend payments offers a reliable income stream for the long term investor. I would recommend DE as a buy for long term investors looking for a reliable blue chip offering an upside to their portfolio, with an investment timeframe of 3-5 years if the company continues to deliver on its sales and capital grow
Disclaimer: This advice is general in nature only, and investors should seek independent financial advice prior to making any investments of their own.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.