uploads///Part  Valuations

Behind Deere’s Valuations ahead of Its Fiscal 3Q17 Results


Aug. 16 2017, Updated 9:07 a.m. ET

Deere’s forward PE multiple

As of August 14, 2017, Deere’s (DE) one-year forward PE (price-to-earnings ) multiple stood at 18.3x, compared with Caterpillar’s (CAT) one-year forward PE multiple of 18.8x.

The forward PE multiple is one valuation method among several others. The method considers future earnings and tells how much an investor is paying for the stock per dollar of expected earnings over the next 12 months.

Investors can make use of this tool to compare two or more companies that are operating in the same industry to verify which company is overvalued or undervalued.

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Deere trades at discount

Deere is now trading at a discount compared to Caterpillar. After its strong 2Q17 earnings, analysts forecast Deere’s fiscal EPS (earnings per share) to be $6.41, representing 33.4% growth over the previous year.

During its fiscal 3Q17, Deere entered into a definitive agreement to buy Wirtgen Group for ~4.4 billion euros. The deal is expected to be closed in the first quarter of DE’s fiscal 2018, and along with organic growth, the move has caused analysts to estimate DE’s fiscal 2018 EPS to be $7.20, which would be an increase of 12.3% over fiscal 2017.

Caterpillar’s EPS for fiscal 2017 is expected to be $5.23, representing an increase of 53.1%. For fiscal 18, CAT is expected to post EPS of $6.53, implying an increase of 24.7% over fiscal 2017. By comparison, CAT’s EPS growth is higher than DE, and so CAT is trading at a premium to DE.

Investors looking for exposure to DE can invest in the iShares Commodities Select Strategy ETF (COMT), which has 2.5% of its portfolio in Deere. COMT also provides exposure to Monsanto (MON) and Potash (POT), with weights of 3.7% and 1.0%, respectively, as of August 14, 2017.


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