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Deere (NYSE:DE) announced its quarterly earnings Wednesday, and the company beat estimates for the 8th time in a row. The company continues to see sales growth at an impressive rate. Years ago, when I bought shares of Deere, I was hoping that the company would take advantage of increased demand of food in the world, and it has been not only meeting but also exceeding my expectations since then.

It really surprises me how little attention investors pay to this company. Here we have a large and established company that keeps growing at an impressive rate, beating estimates almost every quarter, trading at a low P/E ratio (i.e., below 10 after excluding its cash) and that has very manageable debt levels. Overall, the company is well-run and well-positioned to address the future needs it is facing. Many people don't even have this company on their watch lists, let alone in their portfolios.

By February, Deere's share price was as high as $90, but today it trades for only $74. The market is overly worried about the debt problem in Europe, and Deere is one of the companies that gets punished unnecessarily due to European worries. Also, some analysts believe that the company has reached its peak, but they have been saying that for the last 2-3 years, and the company keeps growing at a double-digit rate. Another concern for Deere is that the government might cut some tax subsidies to farmers in the U.S. This move might make it more difficult for farmers to afford Deere's equipment, however the demand in the growing markets would probably make up for the lost revenue.

Not only did Deere beat the estimates, it also raised its future guidance further. Now the company expects to earn $8.25 for 2012, whereas the company's earlier target for the year was $8. The guidance gives the company a future P/E ratio of 8.96, which is pretty low for a company that continues to see double-digit EPS growth. Interestingly enough, analysts were expecting the company to decrease its yearly guidance rather than increase it. Still, the company beating estimates and increasing guidance was not good enough for the investors as the company lost 3% of its value after the announcement.

As countries like China and India see economic growth, the demand for food keeps increasing. As the commodity prices increase due to the high demand, this motivates farmers to buy new equipment to replace or expand their existing fleet. In the near term, commodity prices may come down as the world economy slows down, but in the long term, the trend seems to be upward. Demand for Deere equipment will be strong in all parts of the world in the next few years and there is no sign of slowing down in any of the geographical locations anytime soon. The biggest threat in front of Deere is the drought experienced in certain parts of the world, particularly Latin America; however this problem is likely to be a temporary one.

In order to answer the ramped-up demand, the company is opening new plants and increasing the production rate in the existing plants. The company will invest $1.3 billion to build 7 additional plants.

Last quarter Deere's sales grew at a faster rate in North America than the rest of the world (i.e., 18% vs. 6%). According to U.S. Department of Agriculture, monthly corn exports are expected to pass 1.9 billion bushels by August of 2013. Strong demand from China will continue to drive the ever-growing crop exports and this will reflect positively on companies like Deere. At the moment, China imports $20 billion worth of crops from US. Deere's current yearly revenue is $34 billion and the goal is to have annual revenue of $50 billion by 2018. Given the company's recent growth rate, this goal is very attainable.

In addition to farming equipment, Deere's construction and forestry equipment sees high demand as well. Compared with the same quarter a year ago, sales of such equipment by Deere increased by 26%. Once the world economy starts growing again, the demand for construction equipment will increase even at a faster rate.

The best thing about Deere's earnings beat was that it was sales driven. The company didn't have to cut costs, fire people or lock-in one-time gains to achieve this growth. The growth was based on a revenue increase and this revenue increase is based on robust demand. I think things are looking great for Deere and the company will continue to surprise analysts. For the last several years, Deere has been an underdog in the stock market, and it will continue its status for a long time.

Source: Deere Does It Again