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How Deere’s Valuation Compares

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Deere’s forward price-to-earnings multiple

In this part, we’ll compare Deere’s (DE) valuation with peers’. As of March 21, 2018, Deere’s forward PE (price-to-earnings) multiple was 15.5x, while peer Caterpillar (CAT) had a multiple of 16.5x. Forward PE valuation considers future earnings. Forward PE multiples can be used by investors to compare two or more companies operating in the same industry and check which companies are overvalued and which are undervalued.

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Is Deere undervalued?

Deere is trading at a discount to peer Caterpillar. For the next year, Deere’s adjusted EPS (earnings per share) are expected to be $9.98 per share, representing 36% growth YoY (year-over-year). DE’s growth will be primarily driven by the organic growth, and Wirtgen Group, which Deere acquired in December 2017, will fully contribute to Deere’s earnings. Deere also has entered into an agreement to acquire King Agro, which specializes in carbon-fiber technology products. This acquisition could also boost DE’s earnings.

On the other hand, analysts expect Caterpillar to have adjusted EPS of $9.15 in fiscal 2018, implying a 33% increase YoY. Deere’s earnings are forecast to grow at a higher rate than Caterpillar’s, suggesting DE is undervalued.

Investors seeking indirect exposure to Deere could consider the VanEck Vectors Natural Resources ETF (HAP), which has invested 6.9% of its holdings in Deere. The fund also provides exposure to Monsanto (MON) and CNH Industrial (CNHI), which had weights of 7.0% and 1.8%, respectively, as of March 21, 2018.

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