DE - Embedded Expectations Analysis - 2019 04 26
Deere & Company (DE:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 16.7x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about the sustainability of equipment demand, their agriculture and turf margin forecast, and their financing segment offerings.Specifically, management may lack confidence in their ability to manage airfreight and R&D costs, and in the sustainability of foot traffic and construction & forestry equipment demand. Furthermore, they may be concerned about seasonality, decreases in their agriculture and turf margin forecast, and weakness in large tractor and international market demand. Finally, they may be exaggerating equipment rental utilization rates and the balance of their financing portfolio, and may be overstating their financing segment's ability to allow farmers to upgrade equipment.
Deere & Co. operates the following segments: Agriculture and Turf, which manufactures and distributes a line of agriculture and turf equipment and related service parts, including utility tractors, tractor loaders, combines, cotton pickers, cotton strippers, and sugarcane harvesters; Construction and Forestry, which manufactures and distributes a range of machines and service parts used in construction, earthmoving, road building, material handling and timber harvesting, including backhoe loaders and crawler dozers and loaders; and Financial Services, which finances sales and leases by the company's dealers of new and used agriculture and turf equipment and construction and forestry equipment.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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