DE - Embedded Expectations Analysis - 2020 08 25
Deere & Company (DE:USA) currently trades near historical relative to UAFRS-based (Uniform) earnings, with a 27.2x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about the potential of their vehicle connectivity capabilities, the state of the agricultural sector, and aging fleetsSpecifically, management may lack confidence in their ability to meet their net income forecast, sustain connected machine growth, and ensure the safety of employees. Moreover, they may be exaggerating the potential of equipping their vehicles with connectivity capabilities and its ability to keep customers up and running, and the favorable customer responses of their new products. Additionally, they may have concerns about the continued underproduction of new machines, disruptions in the North American and Argentinian agricultural sector, and Brazilian farmers delaying equipment investments due to the pandemic. Furthermore, they may be overstating the aftermarket potential of their aging fleet, ExactEmerge's ability to reduce cost of production, and the value of dealers' data operation center investments
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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