Deere & Company (NYSE:DE) is the global leader in farm equipment, with about $33 billion in annual revenues. Like all cyclical businesses, no single year's results tell the story of the company's success or failure. Only long-term numbers tell you how good a job management has done.
Has Deere passed the test of time? You be the judge. Here are Deere's per-share, split-adjusted figures for the period fiscal 2002 through FY 2012 (ends October 31, 2012).
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As nice as those numbers look, they wouldn't mean much if shareholders hadn't benefited. Here's how they did. Lots of volatility, but a 297% capital gain (plus dividends) made even those (almost extinct) buy-and-hold investors glad they did. By definition, nimble traders should have done even better.
Value Line notes that Deere earns its highest A++ financial strength rating. DE shares outperformed 85% of the 1700-company Value Line main research universe over the long haul.
The world will always need to eat. Agricultural equipment will continue to be a great business. At less than 9.7x current year earnings, you are not paying for the growth that seems inevitable over time. The secure, well-covered 2.48% current yield is a nice bonus while you wait.
What is Deere worth on a normalized basis? Its 10-year median multiple has been 14x. Zacks expects FY 2013 to come in around $8.36 per share. Even a multiple of 12 would support a 16-month target above $100 if that estimate proves correct. That's no long-shot. DE touched highs of $94.90 in 2008 on FY EPS of $4.70. It hit a peak of $99.80 in April 2011 when DE was on the way to $6.63 in EPS.
Morningstar and Standard & Poor's smile favorably on DE shares. They independently came up with present day 'fair value' estimates of $87 and $89.10, respectively.
Value seekers will like the solid balance sheet, low P/E and good yield. Traders will love the volatility. Farmers worldwide crave Deere's aspirational products. Deere is a stock to scale into. Consider taking a partial position now and adding to it on weakness.
Deere is a classic 'quality at a reasonable price' stock. Deere is also a high-beta name. Be prepared for a wild ride with a good probability of harvesting gains.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DE over 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.