Analyzing Deere’s Valuation before Its Earnings



Deere’s forward PE multiple

In the previous part, we looked at analysts’ recommendations for Deere (DE). In this part, we’ll compare Deere’s valuation with its peer.

As of August 14, Deere’s forward PE multiple was at 12.5x. Caterpillar (CAT) had a PE multiple of 11.0x. A forward PE valuation considers future earnings. Investors can use forward PE multiples to compare two or more companies operating in the same industry. The PE multiple shows if companies are overvalued or undervalued.

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Is Deere overvalued?

Currently, Deere is trading at a premium compared to Caterpillar. In the second fiscal quarter, Deere reported an adjusted EPS of $3.31, which implies 26.1% growth. However, Deere didn’t meet analysts’ expectations. Deere made an upward revision to its adjusted net income for fiscal 2018 to $3.1 billion—compared to the previous guidance of $2.85 billion. The company’s earnings growth is expected to continue its upward trend due to its acquisition and organic growth. The cost synergy from the acquisition of Wirtgen is expected to drive Deere’s earnings growth.

As a result, analysts expect Deere’s adjusted EPS for the next four quarters to be at $10.55, which implies an increase of 32% over the previous year.

Analysts expect Caterpillar’s adjusted EPS for the next four quarters to be at $9.9—an increase of 20.6% over the previous four quarters. With Deere’s projected adjusted EPS growth higher than Caterpillar’s project growth, Deere is trading at a premium to Caterpillar.

Investors looking to hold Deere indirectly could invest in the VanEck Vectors Agribusiness ETF (MOO), which has invested 7.2% of its portfolio in Deere. The fund also provides exposure to CNH Industrial (CNHI) and FMC (FMC) with weights of 3.4% and 2.7%, respectively, as of August 14.


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