It's OK to like Deere here

Posted Mar 25th 2008 4:10PM by Joseph Lazzaro
Filed under: International Markets, Deere and Co (DE), Commodities, Agriculture, Stocks to Buy

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and which have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Deere & Co. (NYSE: DE) is worth an evaluation.

Deere, one of the two largest manufacturers of farm equipment in world and a leader in construction and lawn care equipment, is well-positioned to take advantage of several, long-term, global trends. Chief among these are strong international agricultural and international construction/building activity and an expanding international market for consumer equipment sales.

Solid, enduring growth in international agricultural markets is the standout fundamental here, with the segment's revenue growth expected to offset slumps in equipment sales for the cooling U.S. housing market. Other positives: DE's costs remain under control, its balance sheet is strong, and agriculture equipment market conditions suggest the company has modest pricing power. Further, increased use of renewable fuels is likely to add to demand for DE's equipment, assuming at least one renewable fuel gains traction as a practical, affordable alternative to petroleum-based energy.

The Reuters F2008/F2009 EPS consensus estimates for DE are $5.21/$6.20.

The risks? Deere's retirement benefit obligations are on analysts' radar screens, along with intensifying competition. A sustained global economic slowdown would also (obviously) hurt DE's results.

The First Call mean rating for DE is Buy (17 firms); the mean 2008 target is $95 (high: $105, low: $80).

Stock Analysis: Deere is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from DE's shares. Consider a stop loss of $58 if you were to purchase shares in this company:.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: agriculture, Asia, DE, Deere, emerging markets, featured, food, food production, infrastrucure