Deere Earnings Preview: Ag Fundamentals Intact, Valuation Not Compelling

| About: Deere & (DE)

John Deere (NYSE:DE), the farm equipment manufacturer, reports fiscal first quarter 2013 on Wednesday morning, February 13th, before the bell.

Analyst consensus is looking for $1.40 in earnings per share ((NYSEARCA:EPS)) on $6.725 billion in revenues, for expected year-over-year growth of 10% on a 1% decline in revenues.

The EPS figure has moved slightly higher after November's Q4 '12 report as has the revenue estimate.

Last quarter, fiscal Q4 '12 for DE, the company missed on earnings thanks to lower net from Ag and Turf, as well as some non-operating or "below-the-line" items which hit EPS.

DE used the Q4 '12 report to give its first guidance for 2013, which was for 5% revenue growth over 2012's full-year $33.5 billion and full year EPS up 9% - 10% to roughly $8.35 per share.

The long-term fundamental story around the continued growth in agriculture worldwide remains intact, however the ag equipment cycle is on one rather long run over the past decade, without much of a pullback.

US Farm cash receipts continue to grow which means farms are flush and can replace aging tractors and equipment.

We are not presently long the stock and one reason is the cash-flow valuation of 29(x) price-to-cash-flow, and the lack of any meaningful free-cash-flow.

Analyst consensus over the next three years is looking for "mid-single-digit revenue growth" and high-single-digit EPS growth, so we would prefer to own the stock closer to $80 per share than its current price.

If China recovers and grows at a faster rate than DE, and Western Europe improves, then DE might have some upside.

At present we think the stock is fairly valued: our internal model values DE at $92 per share, while Morningstar has a fair value of $87.

We'd be interested at a price closer to $80. Great company, it is just that little excites us about DE's current valuation or prospects.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Farm & Construction Machinery, , Earnings
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