As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Deere & Co ().
ProfileDeere is the world’s leading manufacturer of agricultural equipment and a major producer of construction machinery. The company is divided into four reporting segments: production & precision agriculture (PPA), small agriculture & turf (SAT), construction & forestry (CF), and financial services (FS), its captive finance subsidiary. The core PPA business is the largest contributor to sales and profits by far. Geographically, Deere sales are 60% US/Canada, 17% Europe, 14% Latin America, and 9% rest of world. Deere goes to market through a robust dealer network that includes over 2,000 dealer locations in North America with reach into over 100 countries. John Deere financial provides retail financing for machinery to its customers and wholesale financing for dealers.
Recent PerformanceOver the past twelve months the share price is up 21.08%.Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 143.62 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 102.40 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 24.22 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 126.62 billionNet DebtNet Debt = Total Debt – Total Cash = 56.98 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 69.64 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $251.40
Conclusion
Based on the DCF valuation, the stock is overvalued. The DCF value of $251.40 per share is lower than the current market price of $476.56. The Margin of Safety is -89.56%.
