Why I Remain Bullish on This Industrial Powerhouse

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

What's great about the agriculture sector is that when it does well, it's not just farmers who make money. Companies that have anything to do with the greens, be it fertilizers or farm equipment, stand to gain.

Deere (NYSE: DE  ) is one such beneficiary. Its second-quarter revenues surged 24%, primarily because of the agriculture boom, encouraging the company to raise its full-year earnings guidance. But numbers aren't enough to decide whether the stock is worth investing in. I am going to take a deeper look to help Fools decide whether the stock is worthy of their money.

Operational performance
Higher shipment volumes and improved price realization have been boosting revenues for the Illinois-based company. While revenues grew at a compounded average rate of 6.8% over the past half-decade, what is impressive is the jump in the growth rate to 26.8% over the past year.

This strong top-line growth has helped contribute to Deere's bottom line growing at an amazingly high one-year rate of 118.4%.

Growth and stability
Deere has been quite aggressive with its spending on new products and global expansions. It keeps eyeing emerging markets such as China and India, and has been strengthening its foothold in these regions through joint ventures and tie-ups.

Deere also keeps its portfolio of products on the run by adding products continuously. Last month, it unveiled what it terms "the largest, most significant product introduction in the company's 174-year history."

Such heavy investments are obviously going to weigh on the company's debt levels, which could be the only concern on its balance sheet. Deere's total debt-to-capital ratio is high at 77.7%. However, strong operating margins and cash equivalents of $3.4 billion provide some relief. Deere's modest dividend payout ratio of 21.2% over the past 12 months also provides some margin of safety.

Value insights
Let's take a look at how Deere's valuation stacks up to some of its peers':


Trailing P/E

Forward P/E


Deere 12.8 11.0 4.3
Caterpillar (NYSE: CAT  ) 14.2 11.2 4.1
Cummins (NYSE: CMI  ) 12.8 10.4 3.7
CNH Global (NYSE: CNH  ) 10.4 9.6 1.0
AGCO (NYSE: AGCO  ) 11.8 10.5 1.4
Toro (NYSE: TTC  ) 15.0 13.2 5.1
IllinoisTool Works (NYSE: ITW  ) 12.0 11.5 2.1

Source: Capital IQ, a division of Standard & Poor's. P/E = price to earnings. P/BV = price to book value.

Deere's P/E multiples seem to be in line with its peers'. In fact, given its strong operational performance, solid capital investments and moves, it seems that its potential has not been factored in much, suggesting room for more upside potential.

Since Deere is in a capital-intensive industry, looking at price-to-book value also makes sense. Although Deere's is high, that does not necessarily mean that the stock is overvalued. The market is taking into account Deere's massive return on equity -- 37.9%, which is quite strong, even considering its debt level.

In addition to repurchases, Deere raised its dividend last quarter, the ninth quarterly dividend increase in seven years. Its dividend yield is a moderate 2.1%.

The Foolish bottom line
Deere looks well-poised to bank on growing sectors like agriculture. Strong operational performance and great expansionary moves keep me bullish on the stock. I suggest you keep an eye on it.

Click here to add Deere to your stock watchlist.

Neha Chamaria doesn't own shares of any company mentioned. Motley Fool newsletter services have recommended buying shares of Illinois Tool Works and Cummins. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1555476, ~/Articles/ArticleHandler.aspx, 10/24/2016 4:45:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
DE $86.43 Up +0.32 +0.37%
John Deere CAPS Rating: ***
AGCO $51.31 Up +0.54 +1.06%
AGCO CAPS Rating: ****
CAT $86.33 Down -0.30 -0.35%
Caterpillar CAPS Rating: ***
CMI $126.64 Down -0.34 -0.27%
Cummins CAPS Rating: *****
CNH.DL $0.00 Down +0.00 +0.00%
CNH Global CAPS Rating: *****
ITW $113.06 Down -0.22 -0.19%
Illinois Tool Work… CAPS Rating: ****
TTC $46.67 Up +0.08 +0.17%
The Toro Company CAPS Rating: ****