DE - Embedded Expectations Analysis - 2021 02 19
Deere & Company (DE:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 26.3x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about net equipment sales declines, their precision agriculture strategy, and their technology investmentsSpecifically, management may lack confidence in their ability to sustain margin growth and mitigate net equipment sales and net income declines. Moreover, they may be concerned about the impact of their precision agriculture strategy on the corn and soybean ecosystem, and they may be exaggerating the opportunity to drive margin and value expansion through technology differentiation in their construction segment. Furthermore, management may lack confidence in their ability to improve their technology stack value, sustain planter sales growth, and raise more capital with their focused R&D investment strategy. Additionally, they may be concerned about inventory depletion in Brazil, cyclicality in roadbuilding, and non-traditional agriculture competition. Also, management may be exaggerating the potential of their dealer network and new precision agriculture product releases. Finally, they may lack confidence in their ability to utilize digital platforms and sustain improvements in shipment volume and mix
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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