Deere: Great Outlook Baked Into The Stock

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 |  About: Deere & Company (DE)
by: Alex Shadunsky

Farm stocks, such as Deere (NYSE:DE), have been on a roll since October as demand for agriculture commodities has been strong in the world's major markets. This trend is expected to continue. According to Deere's Q1 release, worldwide sales of agriculture and turf equipment are forecast to increase by about 15% for full-year 2012.

However, it seems like the all of the optimism about the company's outlook is built in at this point as all of the valuation metrics suggest that the stock is fairly valued. Note, the stock is sitting just below its all-time high of $99.80 made early last year. Below is an in depth look at the valuation metrics for the company.

Valuation: Deere's trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the valuation metrics compared to their 5 year averages. Deere's current P/B ratio is 5 and it has averaged 4.2 over the past 5 years with a high of 5.8 and low of 2.2. Deere's current P/S ratio is 1 and it has averaged 1.1 over the past 5 years with a high of 1.5 and low of 0.5. Deere's current P/E ratio is 12.4 and it has averaged 16.5 over the past 5 years with a high of 25.8 and low of 8.

Price Target: The consensus price target for the analysts who follow Deere is $95. That is upside of 13% from today's stock price of $83.39 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

Forward Valuation: Deere is currently trading at about $83 a share with analysts expecting EPS of $8.38 next year, an earnings increase of 5% y/y, for a forward P/E ratio of 10. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Caterpillar (NYSE:CAT) is currently trading at about $116 a share with analysts expecting EPS of $11.36 next year, an earnings increase of 19% y/y, for a forward P/E ratio of 10.2.

CNH Global (NYSE:CNH) is currently trading at about $43 a share with analysts expecting EPS of $4.67 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 9.3. Joy Global (NYSE:JOY) is currently trading at about $91 a share with analysts expecting EPS of $8.4 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 10.8. The mean forward P/E of Deere's competitors is 10.1 which suggests that Deere is fairly valued relative to its publically traded competitors.

Top Stock Holders: The top two funds that own Deere are Market Vectors Agribusiness ETF, which owns 5.1 million shares or 1.26% of the shares outstanding, and American Funds American Balanced, which owns 5.6 million shares or 1.4% of the shares outstanding. The top two institutions that own Deere are Cascade Investment, which owns 24.5 million shares or 5.92% of the shares outstanding, and Capital World Investors, which owns 18.1 million shares or 4.47% of the shares outstanding.

Price Action: Deere is down 6.3% over the past year, underperforming the S&P 500, which is up 5.8%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $83.23 and above its 200 day moving average, which sits at $78.01.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.