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Since I first wrote a bullish article on Deere (DE) here, the stock has risen by 8.2%, beating the Dow Jones by more than 570 basis points. What was more surprising, however, was how Caterpillar (CAT) soared an impressive 11.4% over the same time period. Analysts continue to rate both companies a "buy". Based on my multiples analysis and DCF model, I find that the two are safe investments but not incredible value plays.

From a multiples perspective, Deere is the cheapest. It trades at a respective 13.1x and 10.6x past and forward earnings while Caterpillar trades at a respective 16.2x and 11.7x past and forward earnings. Deere also comes with a slightly higher dividend yield at 1.9% and meaningfully lower stock volatility.

Deere also has a successful operational track record. At the fourth-quarter earnings call, Deere noted a successful close to the year:

"It was an excellent quarter which capped an exceptional year. Profits and sales were the highest ever for a fourth quarter. The improvement was broad based but led by Ag and turf. Our other divisions construction, forestry, and John Deere Financial had dramatically higher results as well. Deere's performance for both the quarter and full year reflected strong customer demand for our products as well as the skillful execution of our business plans which are aimed at expanding our global competitive position.

During the year these plans moved ahead at an aggressive rate. We introduced an unprecedented number of products, announced plans for new factories in China, Brazil, and India and invested a record amount in future growth, well over $2 billion of spending for R&D and capital projects. For the year as a whole, John Deere registered its highest ever level of sales, earnings, and cash flow".

As the company builds plants in China, Brazil, and India, management is only further confirming confidence in underlying demand. In addition, Deere's financial devises business has had relatively strong credit quality and minimal delinquencies. With that said, the USDA has recently released its reserved crop outlook. Three-fifths of the firm's business comes from North America where there is a good deal of macro uncertainty. The overall strong finish to the year is pleasing, but profitability issues early in 2011 remind investors about the risks in raw material costs and R&D expenses.

Consensus estimates for Deere's EPS forecast that it will grow by 17.5% to $7.79 in 2012 and then by 5.5% and 3.4% more in the following two years. Assuming a multiple of 13x and a conservative 2012 EPS of $8.11, the rough intrinsic value of the stock is $105.43, implying 21.1% upside. Modeling a CAGR of 8.6% for EPS over the next three years and then discounting backwards by a WACC of 9%, the rough intrinsic value of the stock is $108.57.

Moving onto Caterpillar, we find a company that is improving in several respects.

First, the Architectural Billings Index was 52 in November - a respectable gain off of October. Sales in 2012 are expected to rise upwards of 20% and 80% of dealers in 2011 beat expectations by 10% at a minimum. Second, ROIC is anticipated to rise by 775 bps to 28.1%. Utilization rates and lead times are both gradually improving. Fourth, Indonesia performance has been nothing short of spectacular with forecasts gaining 25%. With that said, I see the multiple contracting somewhat due to Deere's stellar performance.

Consensus estimates for Caterpillar's EPS forecast that it will grow by 64.1% to $6.81 in 2011 and then by 32.9% and 17.7% in the following two years. Assuming a multiple of 13x and a conservative 2012 EPS of $8.91, the rough intrinsic value of the stock is $115.83, implying 9.6% upside.

Source: Why The Street Remains Bullish On Deere, Caterpillar