uploads///Part  Valuations

Deere’s Valuation Compared to Caterpillar


Dec. 19 2017, Updated 7:32 a.m. ET

Deere’s forward PE multiple

In this part, we’ll look at Deere’s (DE) valuations compared to its peer. As of December 14, 2017, Deere’s forward PE (price-to-earnings) multiple stands at 18.0x. DE’s peer Caterpillar (CAT) had a one-year forward PE multiple of 18.70x. The forward PE valuation method considers the earnings forecast for the future period.

The forward PE multiple helps investors compare two or more companies operating in the same industry. Investors can check which company is overvalued and which company is undervalued.

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Deere’s valuation is lower than Caterpillar

Currently, Deere’s valuation is marginally lower than Caterpillar. However, the gap is smaller since Deere posted strong fiscal 4Q17 earnings. Deere expects strong fiscal 2018 earnings. Analysts expect Deere’s 2018 EPS (earnings per share) to be $8.11, which represent 21.30% growth. The projected earnings are expected to be driven by organic growth and the acquisition of Wirtgen Group. The acquisition is expected to contribute ~$3.1 billion in revenue in fiscal 2018.

Analysts expect Caterpillar’s fiscal 2018 EPS to be at $7.91, which represents 22.80% growth over the expected EPS in fiscal 2017. Since Caterpillar’s projected EPS growth is marginally higher than Deere, it commands a premium over Deere.

Investors looking for indirect exposure to Deere can invest in the Natural Resources ETF (HAP), which has invested 7.0% of its holdings in Deere. The fund also provides exposure to Monsanto (MON) and Potash (POT) with weights of 7.50% and 2.40%, respectively, as of December 14, 2017.


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