Deere’s Valuations Compared to Caterpillar



Deere’s forward PE multiple

After discussing analysts’ views and recommendations on Deere (DE), we’ll compare Deere’s valuation with its peer. As of September 18, 2017, Deere’s one-year forward PE (price-to-earnings) multiple stands at 16.80x, while Caterpillar’s (CAT) one year-forward PE multiple stands at 19.90x. The forward PE multiple takes future earnings into consideration for valuations.

The PE multiple can be useful for investors. They can compare two or more companies that operate in the same industry. Analysts can see which company is overvalued and which company is undervalued.

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Deere trades at a discount

Currently, Deere is trading at a discount compared to Caterpillar. After Deere posted better-than-expected fiscal 3Q17 earnings and an upward guidance for its net income in fiscal 2017, analysts expect Deere to post EPS (earnings per share) of $6.52 for fiscal 2017. With Deere acquiring Wirtgen Group, Blue River Technology, and Mazzotti, analysts expect Deere to post EPS of $7.22 in fiscal 2018. It represents 10.70% growth compared to the expected EPS in fiscal 2017.

On the other hand, analysts have projected Caterpillar’s fiscal 2017 EPS to be at $5.25—an increase of 53.6% compared to fiscal 2016. For fiscal 2018, analysts expect Caterpillar’s EPS to be at $6.62, which represents 26.0% growth compared to the expected EPS in fiscal 2017. With Caterpillar having a better earnings growth rate, it’s trading at a premium to Deere.

Investors looking for indirect exposure to Deere can invest in the Natural Resources ETF (HAP), which has invested 5.10% of its holdings in Deere. The fund also provides exposure to Monsanto (MON), Chevron (CVX), and Potash (POT) with weights of 7.70%, 2.60%, 2.40%, respectively, as of September 18, 2017.

In the next part, we’ll discuss Deere’s stock performance in 2017.


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