Monday, May 24, 2010

"Buy, Sell or Hold: Deere and Co. Thrives on Strong Global Trends and Flawless Execution" (DE)

The stock is down 95 cents at $57.78 and is lower than the day of the earnings report on May 19.
From Money Morning Australia:
Deere & Co. (NYSE: DE) beat earnings estimates by a mile last week. It reported $1.58 earnings per share, beating most analysts' estimates by 50 cents! In addition, the company raised its earnings outlook.

In typical fashion, Deere continues to be conservative in guidance. And as I will explain below, the agricultural cycle this year is poised for a large upside surprise, as it is at the very beginning of a prolonged secular pickup.

The bottom line of Deere's performance last quarter is a prelude of things to come. Agriculture is zooming, and thus machinery in that sector is - and will continue - to command premium pricing. At the same time, global inflation is picking up slightly, but is still very subdued, which will help margins some more.

Margins in Deere's Agricultural and Turf segment blew through market estimates, as did its Construction and Forestry segment.

But Deere's success is not just the result of favorable macroeconomic developments in its core markets. The firm's longstanding leadership in North America, where Deere has about 50% of the market, is at the root of these hugely positive developments. This leadership is based on a tradition of high quality products that is well recognized and valued by customers. And this quality is not restricted to its products. It's also evident in Deere's superior approach to customer service throughout its worldwide network of dealers and its disciplined and well-run equipment financing division.

In sum, Deere's superior execution starts with production, and then extends to financing sales and servicing its customers.

Of course, Deere's dominance is well evident in North America. But elsewhere, including Latin America and other emerging markets, the competition with its lesser rivals is much stiffer. Still, Deere's superior quality, financing, and dealership network give the company an advantage, especially during downturns in economic activity. In these periods, Deere's disciplined financing arm experiences a low level of charge-offs due to its conservative financing standards and funding practices. And its superior network of dealers and higher-quality products are able to enhance customer retention....MORE
There is really no reason to bid this one up but it is something to keep in mind.