DE - Embedded Expectations Analysis - 2021 10 26
Deere & Company (DE:USA) currently trades above historical averages relative to UAFRS-based (Uniform) earnings, with a 16.6x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about sales growth, production disruptions, and their autonomous production system.Specifically, management may have concerns about the impact of farm labor shortages on their customers, the sustainability of their market share in excavators, and continued production disruptions due to supply chain headwinds. In addition, they may lack confidence in their ability to maintain precision agriculture operating margins, small agriculture and turf net sales, and worldwide financial services net income. Furthermore, they may also lack confidence in their ability to introduce fully autonomous production systems for non-tractor machine forms and they may be overstating the capabilities of their next generation construction 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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