The world's largest maker of farm equipment is due to report earnings on February 18 and the outlook is generally bleak. All of the major drivers behind Deere's (NYSE: DE) formidable business appear to be headed into a tailspin. Global agricultural commodity prices have come down significantly from peaks in 2007 and 2008, leaving farmers with less money to spend.The U.S. Department of Agriculture is estimating that net farm income in the U.S. will decline by a whopping 20% on average. Currency shocks and the disappearance of financing for farm equipment has further worsened the outlook. Key rival Agco (NYSE: AG) reported in its recent earnings that it was seeing a fast deterioration in South American markets, according to Reuters, a bad omen as that had been one of the fastest growing segments for Deere & Co. and its competitors. The construction markets, where Deere has been strong globally, are also in a tailspin, with housing and commercial project markets still frozen due to the economy and evaporation of credit and finance lines for these projects. In another ominous sign, Caterpillar (NYSE: CAT), a giant in the construction and mining business, has announced plans to lay off a stunning 25,000 employees or roughly 15% of its global work-force. The only clear upside for Deere is the pending stimulus packages in the U.S., the E.U. and Asia, and hope that these packages may spur equipment purchases for infrastructure projects. Deere looks cheap on a historical basis with a share price of roughly $36 -- way off the 52-week high of $95. And its ratios look pricey compared to all of its competitors with a F/PE of over 14 and Price-to-Book ratio of more than double that of the construction equipment industry as a whole. Deere may be the cream of the crop in this field of dreams but buying the stock in the middle of this environment is akin to buying some swampland in Florida.
Alex Salkever is the Director of Research at Piqqem.com, an online stock research tool that taps the "wisdom of crowds" to accurately predict stock prices and market moves.
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