The document analyzes Deere & Company (DE), a global manufacturer of agricultural and construction equipment. It recommends a HOLD rating for DE stock, with a target price of $84.59. While DE's brand recognition in the US and Canada will support market share gains, the company faces downward trends in foreign markets and declining margins. A DCF analysis indicates the stock is currently slightly overvalued. Key risks to the business include government regulation, economic slowdowns, and currency fluctuations.

1. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
1
Construction
&
Farm
Machinery
Deere & Company (DE)
7/11 10/11 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14
$55
$60
$65
$70
$75
$80
$85
$90
$95
$100
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Source: FactSet Prices
Key
Drivers:
• Brand
name:
63%
of
net
sales
originate
from
the
U.S.
and
Canada
with
sales
expected
to
increase
5%
in
2014
due
to
improved
economic
conditions
and
brand
name
recognition.
• Agricultural
commodity
prices:
Corn
and
wheat
prices
are
expected
to
remain
flat
with
an
increase
in
demand
driving
up
price.
DE’s
stock
price
is
heavily
influenced
by
drought
conditions.
• Global
expansion:
An
improved
global
economic
recovery
and
rise
in
housing
starts
have
increase
sales
in
the
construction
and
forestry
division.
Moreover,
DE
has
favorable
currency
exchange
rates
in
Brazil
in
China.
• New
construction:
The
global
manufacturing
PMI
is
51.3,
which
signals
expansion
for
the
17th
successive
month.
However,
it
has
been
falling
recently.
• Technological
design:
R&D
costs
are
6%
of
cost
of
sales
and
will
keep
DE
in
its
market
position
and
comply
with
Tier
IV
standards.
Valuation:
Deere
was
valued
using
multiples
and
a
3-­‐stage
discounting
cash
flow
model.
Based
on
multiples,
the
stock
is
slightly
overpriced
versus
other
firms.
On
a
DCF
basis,
the
stock
is
worth
$84.59,
which
is
below
its
current
price
of
$93.14.
Risks:
Threats
to
the
business
include
government
regulation,
a
global
economic
slowdown,
and
foreign
currency
fluctuations.
Recommendation
HOLD
-­‐
UNDERWEIGHT
Target
(today’s
value)
$84.59
Current
Price
$93.14
52-­‐Week
Price
Range
$74.90
-­‐
$96.34
Share
Data
Ticker:
DE-­‐US
Market
Cap.
(Billion):
$24,508
Inside
Ownership
0.1%
Inst.
Ownership
74.7%
Beta
1.2
Dividend
Yield
2.2%
Payout
Ratio
21.9%
Cons.
Long-­‐Term
Growth
Rate
8.0%
‘11
‘12
‘13
‘14E
‘15E
Sales
(billions)
Year
32,013
36,157
37,795
37,700
37,812
Gr
%
23.1%
12.9%
4.5%
-­‐0.3%
0.3%
Cons
-­‐
-­‐
-­‐
$X.X
$X.X
EPS
Year
$6.73
$7.74
$9.18
$8.54
$7.90
Gr
%
52.2%
15%
18.7%
-­‐6.9%
-­‐7.5%
Cons
-­‐
-­‐
-­‐
$8.40
$7.64
Ratio
‘11
‘12
‘13
‘14E
‘15E
ROE
(%)
45.1
41.4
41.4
29.4
24.3
Rel
Industry
2.8
4.3
4.4
2.6
2.8
NPM
(%)
8.8
8.5
9.4
8.4
7.4
Rel
Industry
1.4
1.5
1.6
1.8
1.6
A.
T/O
0.70
0.69
0.65
0.62
0.61
ROA
(%)
6.1
5.9
6.1
5.2
4.5
Rel
Industry
8.7
8.6
9.4
9.1
9.2
A/E
6.99
7.66
6.77
5.64
5.44
Valuation
‘10
‘11
‘12
‘13
P/E
17.6
11.5
11.2
9.0
Rel
Industry
1.6
1.1
0.9
0.69
P/S
1.3
1.0
0.9
0.8
P/B
5.2
4.5
4.8
2.9
P/CF
33.9
49.7
40.1
36.3
EV/EBITDA
10.8
8.8
9.0
8.2
Performance
Stock
Industry
1
Month
2.1%
0.6%
3
Month
8.5%
9.3%
YTD
2.1%
6.8%
52-­‐week
6.21%
18.1%
3-­‐year
4.6%
-­‐0.7%
Contact:
David
Cheske
Email:
dmcheske@uwm.edu
Phone:
414
491-­‐3581
Analyst:
David
Cheske
Summary:
I
recommend
a
hold
rating
with
a
price
target
of
$84.59.
The
DE
brand
name
in
U.S.
and
Canada
will
allow
for
gains
in
market
share
and
added
value
for
customers
to
its
product
lines.
However,
DE
is
facing
downward
industry
trends
in
foreign
markets
and
declining
margins.
The
stock
is
slightly
overvalued
based
on
DCF
analysis.

2. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
2
Agriculture
and
truf,
77%
Construcf
on
and
forestry,
16%
Financial
services,
6%
Other
revenues,
1%
Company
Overview
Deere
&
Company
(DE)
is
a
global
manufacturer
of
agricultural
and
construction
machinery
and
equipment.
The
firm
has
three
operating
segments:
agriculture
and
turf,
construction
and
forestry,
and
financial
services.
Though
Deere
operates
worldwide,
the
majority
of
its
revenue
is
comprised
from
U.S.
and
Canada.
John
Deere
provides
the
most
complete
line
of
forestry
machines
and
attachments
available
in
the
world.
As
shown
in
figure
1,
the
agricultural
and
turf
segment
has
generated
77%
of
sales.
$29.1
billion
in
sales
was
derived
from
agriculture
and
turf
and
construction
and
forestry
generated
$5.9
billion
in
2013.
These
segments
consist
of
the
equipment
manufacturing
platforms
–
crop
harvesting,
turf
and
utility,
hay
and
forage,
crop
care,
tractors,
construction,
earthmoving,
material
handling
and
forestry
equipment.
The
U.S.
and
Canada
make
up
the
majority
of
the
equipment
segments
and
generated
$21.8
billion
in
sales
and
80%
of
DE’s
operating
profit
($2,083
billion).
Figure
2
shows
the
growth
rates
by
division.
Construction
and
forestry
is
the
most
cyclical
division
while
agriculture
and
turf
is
less
cyclical.
The
financial
services
segment
primarily
finances
sales
and
leases
by
John
Deere
dealers
of
new
and
used
equipment.
This
financial
services
operation
is
comprised
of
6%
of
sales
and
is
offered
outside
the
U.S.
and
Canada.
Net
income
of
this
segment
totaled
$565
million
in
2013.
Outside
the
U.S.
and
Canada,
DE
had
an
operating
profit
of
$996
million
in
2013
with
sales
of
$13.2
billion.
It
currently
owns
and
leases
20.8
million
square
feet
of
factory
floor
space
outside
the
U.S.
and
Canada
and
has
plants
in
Argentina,
Brazil,
China,
the
European
Union,
India
and
Russia.
DE
sells
its
agriculture
and
turf
equipment
primarily
through
independent
retail
dealer
networks,
and
builds
products
for
sale
by
mass
retailers,
including
The
Home
Depot
and
Lowe’s.
Outside
the
U.S.
and
Canada,
John
Deere
agriculture
and
turf
equipment
is
sold
to
distributors
and
dealers
for
resale
in
approximately
100
countries.
Deere
was
founded
by
John
Deere
in
1837
and
is
headquartered
in
Moline,
IL.
Figure
1:
Revenue
sources
of
DE
for
year-­‐end
2013
Figure
2:
Operating
segments
sales
YOY
since
2008
11
consecutive
quarters
of
record
earnings.
-­‐50%
-­‐40%
-­‐30%
-­‐20%
-­‐10%
0%
10%
20%
30%
40%
50%
2008
2009
2010
2011
2012
2013
2014
2015
Agriculture
&
Turf
Construcfon
&
Forestry
Financial
Services
Other
Source:
Company
reports Source:
Company
reports

3. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
3
Industry
Analysis
The
construction
and
farm
machinery
and
heavy
trucks
industry
encompasses
a
wide
range
of
industrial
firms
that
manufacture
machinery
equipment,
parts
and
services.
As
shown
in
figures
3
and
4,
top
firms
in
the
industry
include
Deere
&
Co,
Caterpillar,
Cummins,
and
Paccar.
These
firms
comprise
of
about
76%
of
industry
sales.
This
industry
is
heavily
influenced
by
global
economic
conditions,
weather
conditions
and
crop
growing
seasons.
Figure
3
&
4:
Sales
by
industry
(left)
and
market
capitalization
by
industry
(right)
These
firms
compete
globally
in
the
homebuilding,
agricultural
products,
and
Industrial
machinery
sub-­‐industries.
Caterpillar
has
a
15%
share
in
the
heavy
industrial
machinery
sub-­‐industry
and
DE
has
6%
share.
In
the
agricultural
product
machinery
sub-­‐industry,
DE
has
66%
control
and
AGCO
has
25%
market
share.
Figure
5:
John
Deere’s
sales
by
industry
and
sub-­‐industry
relative
to
its
comparable
firms
for
the
past
five
years
Source:
FactSet Source:
FactSet
CAT
34%
DE
18%
CMI
14%
PCAR
11%
AGCO
3%
OSK
2%
TEX
3%
JOY
3%
TRN
2%
WAB
4%
TWI
1%
TTC
2%
ASTE
1%
FSS
1%
LNN
1%
CAT
33%
DE
22%
CMI
10%
PCAR
10%
AGCO
6%
OSK
4%
TEX
4%
JOY
3%
TRN
2%
WAB
1%
TWI
1%
TTC
1%
ASTE
1%
FSS
1%
LNN
1%
Agricultural
Products
2013
2012
2011
2010
2009
Sales
(millions)
6,486
6,141
5,938
5,666
5,796
DE
%
of
sales
36.2%
36.4%
36.4%
34.9%
33.3%
Homebuilding,
Industrial
Machinery
2013
2012
2011
2010
2009
Sales
(millions)
96,442
110,277
98,630
68,138
54,123
DE
%
of
sales
6.1%
5.8%
5.4%
5.4%
4.9%
Financial
Services
2013
2012
2011
2010
2009
Sales
(millions)
6,486
6,141
5,938
5,666
5,796
DE
%
of
sales
36.2%
36.4%
36.4%
34.9%
33.3%
Total
Revenues
of
DE’s
Comparable
Firms
2013
2012
2011
2010
2009
Sales
(billions)
115.8
162.5
146.4
111.7
91.2
DE
%
of
sales
32.6%
22.2%
21.9%
23.3%
25.3%
Source:
Bloomberg

4. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
4
Business
&
Industry
Drivers
John
Deere’s
business
and
success
can
be
attributed
to
several
factors,
but
the
following
are
the
most
important
business
drivers:
• Brand
name
• Agricultural
commodity
prices
• New
construction
• Global
expansion
• Technological
design
Brand
name
Over
the
past
five
years
(except
in
2011),
John
Deere
generated
about
64%
of
its
sales
through
the
U.S.
and
Canada.
Geographical
sales
have
remained
fairly
consistent
and
the
U.S.
and
Canadian
markets
have
been
the
main
sources
of
revenue.
The
driver
for
these
sales
is
based
on
John
Deere’s
brand
name
and
recognition
in
the
market.
DE
is
ranked
79th
amongst
best
global
brands
in
2013.
As
shown
below,
DE
has
a
higher
margin
of
operating
income
inside
the
U.S.
&
Canada
relative
to
its
peers.
Outside
the
U.S.
&
Canada,
its
margins
are
lower.
Figure
6:
DE’s
operating
income
inside
U.S
&
Canada
Figure
7:
DE’s
operating
income
outside
U.S.
&
Canada
Domestically,
DE
is
a
well-­‐known
firm
and
consumers
are
willing
to
pay
a
premium
for
the
quality
of
the
product.
DE
has
an
operating
profit
of
20%
of
sales
inside
and
9%
operating
profit
of
sales
outside
U.S
and
Canada.
As
shown
below,
sales
have
increased
year-­‐over-­‐year.
For
the
past
five
years
DE
has
continually
increase
its
sales
year-­‐over-­‐year.
Figure
8:
John
Deere’s
year-­‐over-­‐year
sales
Deere
is
listed
among
the
50
most
admired
companies
by
Fortune
magazine.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
04
05
06
07
08
09
10
11
12
13
14
15
DE
Inside
U.S.
&
Canada
Industry
Average
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
04
05
06
07
08
09
10
11
12
13
14
15
DE
Outside
U.S.
&
Canada
Industry
Average
Source:
Bloomberg Source:
Bloomberg
-­‐40.0%
-­‐30.0%
-­‐20.0%
-­‐10.0%
0.0%
10.0%
20.0%
30.0%
2009
2010
2011
2012
2013
2014
2015
Inside
U.S.
&
Canada
sales
Outside
U.S.
&
Canada
sales
Source:
Company
reports

5. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
5
Agricultural
commodity
prices
2013
was
a
record-­‐growing
year
for
farmers;
however,
prices
have
decreased
from
2013
due
to
the
surplus
in
stock
inventories
of
commodities.
As
shown
in
figure
9,
market
conditions
in
the
U.S.
and
Canada
have
improved
year-­‐over
and
the
price
of
DE
is
correlated
0.88
to
the
S&P
Commodity
Index.
Also,
improved
market
conditions
and
agricultural
production
growth
in
the
emerging
markets
are
expected
to
drive
up
sales.
77%
of
DE
business
originates
from
the
agricultural
and
turf
division.
Sales
from
this
division
increased
7%
in
2013.
Figure
9:
QYQ
change
in
price
vs.
S&P
Commodity
Index
Figure
10:
YOY
change
in
demand
commodities
The
agricultural
industry
is
cyclical
in
nature
and
influenced
by
weather
patterns,
production
levels
and
government
regulation.
The
drought
in
2012
seriously
affected
the
demand
for
agricultural
commodities
causing
prices
to
increase
dramatically.
Since
2012,
the
one-­‐year
return
average
of
corn
prices
fell
-­‐28%,
but
the
demand
for
the
top
three
produced
commodities
has
increased.
Corn
production
in
the
U.S.
accounts
for
32%
of
harvested
crops.
Farm
subsidies
help
to
hedge
against
uncertainties
in
growing
seasons.
Farm
subsidies
in
2012
totaled
$14
billion
and
paid
landowners
fixed
amounts
per
acre
based
on
poor
crop
harvests.
In
2014,
Congress
passed
the
farm
bill
that
will
cost
$956
billion
over
the
next
ten
years.
The
$95
billion
a
year
bill
is
seven
times
the
amount
of
subsidies
paid
out
in
2012.
Subsidies
provided
by
the
bill
create
a
fixed
floor
in
the
market
to
protect
farmers
from
financial
losses.
If
crops
fall
below
their
specified
price
floor,
a
crop
insurance
program
will
cover
85%
of
total
planted
acres.
This
also
helps
to
protect
John
Deere
by
allowing
its
customers
to
have
income
to
purchase
smaller
ticket
items
and
parts.
Figure
11:
USDA
subsidies
to
United
States
by
year
show
in
millions
$292.5
billion
in
farm
subsidies
paid
out
1995-­‐2012.
-­‐20%
-­‐15%
-­‐10%
-­‐5%
0%
5%
10%
15%
20%
2010
2011
2012
2013
2014
DE
S&P
Commodity
Source:
FactSet Source:
Bloomberg
-­‐4%
-­‐2%
0%
2%
4%
6%
8%
10%
12%
2009
2010
2011
2012
2013
Corn
Wheat
SoyBean
0
5,000
10,000
15,000
20,000
25,000
1999
2001
2003
2005
2007
2009
2011
Conservafon
Subsidies
Disaster
Subsidies
Commodity
Subsidies
Crop
Insurance
Source:
http://farm.ewg.org/

6. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
6
The
stock
price
of
DE
is
heavily
influenced
by
the
price
of
commodities
and
drought
conditions.
Figure
12
shows
a
0.87
correlation
between
the
price
of
DE
and
the
Drought
Severity
Index.
This
index
is
an
aggregated
total
of
drought
conditions
across
different
regions
in
the
U.S.
with
one
being
not
severe
and
100
being
the
most
severe.
The
prices
of
commodities
also
follow
the
pattern
of
this
index.
Also
shown
below
is
the
before
and
after
price
floor
created
by
the
farm
bill.
Figure
12:
Drought
index
New
construction
An
improved
global
economic
recovery
and
rise
in
housing
starts
have
increase
sales
in
the
construction
and
forestry
division.
In
the
U.S.,
lower
interest
rates
have
led
to
an
increase
in
new
housing.
In
2013,
there
was
an
18.3%
increase
in
residential
housing
starts.
As
shown
below,
the
trend
in
housing
permits
in
the
U.S.
have
steadily
increased
since
2009.
The
global
manufacturing
PMI
is
51.3,
which
signals
expansion
for
the
seventeenth
successive
month.
Construction
and
forestry
segment
constitutes
16%
of
DE
sales.
Figure
13:
Housing
permits
in
the
U.S.
(shown
in
thousands)
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Building
Permits
-­‐
U.S.
Source:
Bloomberg
Source:
Bloomberg

7. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
7
As
shown
in
the
graph
to
the
left
below,
as
ISM
decreases,
DE
rises.
However,
an
increase
in
the
ISM
index
has
a
greater
positive
impact
on
the
machinery
industry
than
DE
(right
graph
below).
As
a
result,
when
the
ISM
rises,
DE
often
underperforms
the
industry.
Figure
14:
DE
versus
ISM
Figure
15:
DE
versus
composite
index
Global
expansion
The
global
economy
is
improving
since
the
recession
of
2008-­‐2009.
The
world
population
is
expected
to
grow
by
1.1%
and
the
global
real
GDP
is
projected
to
grow
2.5%.
As
shown
in
figure
16,
manufacturing
indicators
show
year-­‐over-­‐year
improvements.
The
global
ISM
is
currently
above
50
and
is
expected
to
increase
in
the
summer
months.
Brazil,
the
biggest
exporter
of
soybeans
and
sugar,
is
a
$10
billion
market.
In
2014,
the
government
subsidized
interest
rate
on
farming
loans
increased
from
3.5%
to
6%.
The
increase
in
the
cost
of
borrowing
is
expected
to
lower
industry
sales.
European
Union
population
grew
0.03%
and
experienced
a
negative
GDP
growth
in
2013.
Though
the
2013
crop
harvest
was
up
8%
from
2012,
it
is
expected
to
remain
flat
in
2014.
Outside
the
U.S.
and
Canada,
DE
net
sales
increased
two
percent
for
the
first
quarter,
including
an
unfavorable
currency-­‐translation
effect
of
three
percent.
Figure
16:
ISM
since
2007
Figure
17:
DE’s
foreign
sales
compared
to
GDP
Source:
Bloomberg Source:
Bloomberg
30
35
40
45
50
55
60
65
Mar-­‐07
Nov-­‐07
Jul-­‐08
Mar-­‐09
Nov-­‐09
Jul-­‐10
Mar-­‐11
Nov-­‐11
Jul-­‐12
Mar-­‐13
Nov-­‐13
Global
ISM
Americas
PMI
Europes
PMI
-­‐20.0%
-­‐15.0%
-­‐10.0%
-­‐5.0%
0.0%
5.0%
10.0%
15.0%
0
2000
4000
6000
8000
10000
12000
14000
16000
Mar-­‐04
Jan-­‐05
Nov-­‐05
Sep-­‐06
Jul-­‐07
May-­‐08
Mar-­‐09
Jan-­‐10
Nov-­‐10
Sep-­‐11
Jul-­‐12
May-­‐13
Outside
U.S.
and
Canada
Japan
GDP
Eurozone
GDP
Brazil
GDP
Source:
FactSet Source:
FactSet

8. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
8
Technological
design
The
industry
is
under
strict
government
regulation.
Emission
regulations
for
Interim
Tier
IV
require
a
90%
reduction
in
particulate
matter
along
with
a
50%
by
2015
for
all
diesel,
gasoline,
propane,
and
natural
gas
engines.
In
Europe,
purchasing
trends
are
towards
smaller
machinery.
As
shown
below,
sales
of
40HP
&
under
tractors
in
Russia
outpace
100
HP
&
over
sales
since
2011.
In
the
U.S.,
sales
of
the
under
40hp
exceed
the
larger
tractors.
However,
consumer
trends
are
towards
larger
machinery.
All
these
sales
are
cyclical
with
the
crop
growing
seasons.
Figure
18:
Change
in
U.S.
cash
&
livestock
receipts
Figure
19:
Tractors
sales
Complying
with
government
regulation
will
cause
the
cost
of
sales
to
increase.
In
addition,
an
increasing
trend
in
raw
materials
will
also
affect
Deere’s
cost
of
sales.
With
declining
sales
in
foreign
demand
in
machinery,
margins
will
decrease.
Figure
20
shows
a
decreasing
trend
in
foreign
sales.
In
these
markets,
Deere
competes
on
cost,
which
will
affect
its
margins.
Figure
19:
3
Month
rolling
YoY
price
of
raw
materials
Figure
20:
3
month
rolling
YoY
retail
sales
-­‐
50
100
150
200
250
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Crop
Receipts
Livestock
Receipts
0
2000
4000
6000
8000
10000
12000
14000
16000
Jan-­‐09
Jul-­‐09
Jan-­‐10
Jul-­‐10
Jan-­‐11
Jul-­‐11
Jan-­‐12
Jul-­‐12
Jan-­‐13
Jul-­‐13
Russia
-­‐
2
WD
Tractors
Under
40
HP
U.S.
-­‐
Tractors
Under
40
HP
Russia
-­‐
2
WD
Tractors
100
HP
&
Over
U.S.
-­‐
2
WD
Tractors
100
HP
&
Over
-­‐30%
-­‐20%
-­‐10%
0%
10%
20%
30%
6/2009
12/2009
6/2010
12/2010
6/2011
12/2011
6/2012
12/2012
6/2013
12/2013
Steel
Plate
Hot
Rolled
Steel
Rebar
Rubber
Electricity
-­‐
Industrial
-­‐80
-­‐60
-­‐40
-­‐20
0
20
40
60
80
100
4/2009
9/2009
3/2010
9/2010
3/2011
9/2011
3/2012
9/2012
3/2013
9/2013
3/2014
North
America
Asia/
Pacific
EAME
Lafn
America
Final
Tier
IV
will
take
particulate
matter
and
nitrogen
oxides
to
near-­‐zero
levels.
Source:
Bloomberg
Source:
Bloomberg
Source:
Bloomberg
Source:
Bloomberg

9. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
9
Financial
Analysis
I
project
segment
sales
to
slow
in
the
U.S.
and
Canada
whereas
international
sales
are
to
decrease
due
to
expected
declines
in
crop
receipts,
which
are
likely
to
pressure
agricultural
equipment
demand.
Margins
are
projected
to
decrease
as
Tier
4
final
standards
take
effect
in
2014
causing
cost
of
sales
to
raise.
Figure
21:
Quantification
of
2014E
EPS
drivers
Basic
diluted
earnings
per
share
for
2014
and
2015
are
forecasted
to
be
$8.56
and
$7.96,
while
consensus
estimates
are
at
$8.40
and
$7.66,
respectively.
I
expect
EPS
to
decrease
from
$9.09
in
2013
to
$8.56
in
2014.
DE
should
add
$0.31
in
EPS
through
modest
growth
(3.0%)
in
equipment
sales
in
U.S.
&
Canada.
Declining
international
sales
causes
EPS
to
fall
$0.06.
With
the
decline
in
international
sales,
financial
and
other
revenues
will
drive
EPS
down
of
$0.15
more.
Furthermore,
I
see
a
1%
decrease
in
gross
margins;
EPS
decreases
$0.62
causing
the
largest
decrease
of
EPS.
Adding
to
the
decline
in
EPS
is
the
increase
of
SGA
of
0.5%
from
the
previous
year.
The
SGA
is
estimated
to
be
10%
of
sales
and
causes
EPS
to
fall
$0.31.
I
see
SGA
increasing
from
wage
inflation
and
further
expansion
to
foreign
markets.
Offsetting
these
decreases
is
R&D
and
other,
which
include
taxes,
R&D
interest,
and
other.
This
adds
$0.25
to
earnings
primarily
driven
by
a
20
million
share
reduction.
In
2015,
I
project
U.S.
and
Canada
sales
to
remain
at
the
same
growth
of
3%.
I
project
a
decrease
of
4.0%
in
of
international
sales
to
due
to
slow
economic
growth.
Weaker
crop
receipts
in
foreign
countries
and
lower
farm
commodity
prices
will
adversely
affect
equipment
demand.
$0.31
($0.15)
($0.62)
($0.31)
$0.25
$8.56
$0.06
$9.09
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Oct-­‐13
Equipment
US
&
Canada
Equipment
o/s
US
&
Canada
Financial
&
Other
Gross
Margin
SG&A
RD
&
Other
Oct-­‐14
2013
vs
2014
EPS
Source:
IMCP

10. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
10
Figure
22:
Quantification
of
2015E
EPS
drivers
In
2015,
I
expect
EPS
to
decrease
from
$8.56
in
2014
to
$
7.96
in
2015.
Deere
should
add
$0.32
in
EPS
through
a
3.0%
increase
in
U.S.
and
Canada
sales.
I
expect
a
4.0%
decrease
in
sales
outside
the
U.S.
and
Canada.
Moreover,
I
expect
the
financial
and
other
segments
to
decrease
5.0%
with
the
decrease
in
international
sales.
I
project
a
1%
overall
decrease
in
margins
in
2015
due
to
expansion
in
lower-­‐cost
countries.
The
increase
in
gross
margin
causes
a
$0.62
fall
in
EPS.
I
expect
SG&A
and
operating
expenses
to
go
to
10.5%
of
sales.
Once
again,
R&D
and
other
adds
$0.13
to
EPS,
primarily
driven
by
share
repurchases
(15.9
million).
Figure
23:
Estimated
EPS
versus
consensus
FY
2013A
FY
2014E
FY
2015E
My
estimates
9.09
8.56
7.96
Consensus
9.09
8.40
7.66
Figure
23
shows
my
EPS
estimates
for
2014
and
2015.
My
estimates
are
more
bullish
than
the
consensus
estimates.
The
difference
is
mainly
due
to
my
higher
operating
profit
estimate
for
domestic
sales
versus
international
sales.
In
year
one,
I
modeled
a
5%
decline
in
non-­‐U.S.
and
Canada
sales
with
a
3%
increase
in
U.S.
and
Canada
sales.
Even
with
declining
margins
and
increasing
expenses,
the
operating
profit
made
from
the
increase
of
U.S.
and
Canada
sales
offsets
some
of
the
decrease
in
EPS.
Revenues
Deere
experienced
steady
growth
in
its
total
revenue
from
2009-­‐2011
due
to
growth
in
the
U.S.
and
Canada.
DE
experienced
a
slowdown
in
revenue
growth
in
2012
and
2013
due
to
flat
sales
internationally
and
to
volatility
in
the
emerging
markets.
I
expect
DE
YoY
revenue
growth
rate
to
modestly
decline
through
FY2014
and
increase
in
FY2015.
The
majority
of
future
growth
internationally
will
come
from
expansion
projects
taking
place
in
India.
These
projects
should
add
to
production
next
year.
Although,
I
anticipate
minimal
revenue
growth
next
year
in
the
U.S.
and
Canada,
the
upswing
in
the
cyclical
cycle
will
have
a
greater
effect
on
Deere’s
revenue
in
the
following
years.
Figure
24
illustrates
Deere’s
revenue
and
YoY
revenue
growth.
$0.32
($0.15)
($0.62)
($0.31)
$0.25
$7.96
$0.04
$8.56
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Oct-­‐14
Equipment
US
&
Canada
Equipment
o/s
US
&
Canada
Financial
&
Other
Gross
Margin
SG&A
RD
&
Other
Oct-­‐15
2014
vs
2015
EPS
My
estimates
are
2%
higher
in
2014E
and
4%
higher
in
2015E
than
consensus.
Source:
IMCP

11. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
11
Figure
24:
Sales
and
YoY
sales
growth
Figure
25
shows
my
expectations
for
growth
rates
for
2014
and
2015.
Total
revenues
from
operations
are
expected
to
remain
stagnant
even
though
revenues
are
expected
to
increase
in
the
U.S.
and
Canada.
Overall,
I
expect
revenues
not
to
change
drastically
unless
there
is
another
record
growing
season
as
in
2013.
Figure
25:
FY
2014E
–
FY
2015E
Deere’s
revenue
segment
estimates
(includes
intersegment
sales)
Items
2011
2012
2013
2014E
2015E
Sales
32,012
36,157
37,796
37,700
37,813
Growth
23.1%
12.9%
4.5%
-­‐0.3%
0.3%
Equipment
(Total)
29,466
33,501
34,998
34,994
35,167
Growth
25.0%
13.7%
4.5%
0.0%
0.5%
%
of
sales
92.0%
92.7%
92.6%
92.8%
93.0%
Equipment
US
&
Canada
17,357
20,807
21,821
22,476
23,150
Growth
17.3%
19.9%
4.9%
3.0%
3.0%
%
of
Equip
sales
58.9%
62.1%
62.3%
62.3%
62.3%
Equipment
o/s
US
&
Canada
12,109
12,694
13,177
12,518
12,017
Growth
37.9%
4.8%
3.8%
-­‐5.0%
-­‐4.0%
%
of
Equip
sales
41.1%
37.9%
37.7%
37.7%
37.7%
Financial
1,923
1,981
2,115
2,030
1,990
Growth
5.3%
3.1%
6.8%
-­‐4.0%
-­‐2.0%
%
of
sales
6.0%
5.5%
5.6%
5.4%
5.3%
Other
624
675
682
676
655
Growth
2.9%
8.2%
1.1%
-­‐1.0%
-­‐3.0%
%
of
sales
1.9%
1.9%
1.8%
1.8%
1.7%
Operating
Income
and
Margins
Operating
income
outside
the
U.S.
and
Canada
grew
34.2%
YoY
in
2011,
but
fell
51.8%
in
2012
while
the
overall
operating
income
increased.
This
decrease
was
caused
by
the
global
drought
conditions
in
2012.
The
U.S.
and
Canada
operating
margins
grew
from
2011-­‐
2013,
but
are
expected
to
decline
in
2014
and
2015.
The
figure
below
illustrates
the
operating
income
and
operating
margins
for
Deere.
Source:
Company
reports
-­‐25%
-­‐20%
-­‐15%
-­‐10%
-­‐5%
0%
5%
10%
15%
20%
25%
30%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2008
2009
2010
2011
2012
2013
2014
2015
Sales/Revenue
YOY
Sales/Revenue
Growth
Source:
Company
reports
Sales
forecasts
are
heavily
dependent
on
weather
conditions

12. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
12
Figure
26:
DE’s
operating
margins
and
YoY
operating
income
growth
estimates,
FY
2014-­‐FY
2015E
2011
2012
2013
2014E
2015E
Operating
Income
4,564
5,109
5,928
5,961
5,520
Outside
U.S.
and
Canada
1,073
707
1,160
1,011
1,020
YoY
growth
34.2%
-­‐51.8%
39.1%
-­‐14.7%
0.9%
Gross
margins
8.6%
5.4%
8.6%
7.2%
7.0%
U.S.
and
Canada
3,491
4,402
4,768
4,950
4,500
YoY
growth
22.6%
20.7%
7.7%
3.7%
-­‐10.0%
Gross
margins
18.2%
19.4%
20.0%
19.9%
17.6%
Gross
margins
are
expected
to
fall
to
7.2%
in
2014
and
7.0%
in
2014
due
increasing
costs
of
raw
materials
to
produce
the
machinery.
Gross
margins
are
expected
to
be
lower
due
to
increasing
expansion
and
production
costs
in
2013
from
investments
in
Germany,
Brazil,
and
India.
Other
Income
Deere
derives
some
of
its
income
from
its
financial
services.
This
equates
to
7.0%
percent
of
sales.
This
division
is
extremely
profitable
compared
to
the
equipment
division.
Financial
services
have
a
64%
profit
margin.
However,
the
growth
of
this
division
is
dependent
on
new
sales
of
the
equipment
division.
I
expect
growth
of
this
division
to
decline
with
the
fall
in
sales
outside
the
U.S.
and
Canada.
Capital
Spending,
Sources,
and
Uses
of
Cash
The
capital
spending
for
2014
is
estimated
to
$2.4B.
This
is
up
from
2013
spending
of
$2.3B.
I
assume
spending
will
increase
again
in
2014
and
2015
to
around
$2.4-­‐2.7B
with
its
development
of
John
Deere
FarmSight
technology
and
expansion
of
plants
and
factories.
As
shown
below,
DE
is
spending
its
cash
from
operations
to
fund
operating
and
growth
needs,
pay
common
stock
dividend
and
buy
back
shares.
Figure
27:
Sources
and
uses
of
cash
48%
1%
15%
2%
4%
9%
18%
3%
Cash
From
Operafons
Divesftures
net
of
Acquisfons
Capital
Expenditures
Investmetn
in
Financial
Services
net
Change
in
Debt
and
Intercompany
Balances
Dividends
Share
Repurchases
Source:
Company
reports
Source:
Company
reports
Financial
services
generates
a
64%
profit
margin

13. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
13
Return
on
Equity
Figure
28:
ROE
from
2010
–
2015E
3
Stage
DuPont
2010
2011
2012
2013
2014E
2015E
Net
income
(cont.)
/
sales
7.2%
8.7%
8.5%
9.4%
8.4%
7.4%
Sales
/
avg
assets
0.62
0.70
0.69
0.65
0.63
0.62
ROA
4.4%
6.1%
5.9%
6.1%
5.3%
4.6%
Avg
assets
/
avg
equity
7.60
6.99
7.66
6.77
5.58
5.28
ROE
33.6%
42.8%
45.1%
41.4%
29.4%
24.5%
Since
2010,
Deere
has
a
record
of
consistent
performance
on
both
ROA
and
ROE.
This
is
in
reflection
of
its
strong
sales
and
investments
in
factories.
Although,
ROE
will
fall
by
2015
as
margins
contract
and
leverage
declines.
Free
cash
flow
per
share
Figure
28:
Free
cash
flow
per
share
Deere
will
see
improvement
in
its
free
cash
flow
per
share,
as
net
fix
assets
are
not
expected
to
rise.
However,
fixed
assets
will
rise
after
2015E
after
recent
investments
in
factories
become
operational.
Operating
liabilities
will
not
increase
from
2013
to
2015E
due
to
the
small
increase
in
overall
sales
and
much
of
the
operating
asset
increase
is
from
the
build
up
in
cash
(over
$3
billion).
Total
capital
spending
for
2013
was
$913M
and
acquisitions
amounted
to
$44M.
Since
net
fixed
assets
are
not
rising,
the
firm
has
plenty
of
FCFE
to
buy
back
shares.
FCFE
IS
ABOUT
$1.8
billion
in
2014
and
2015.
Last
year,
management
put
in
place
a
share
repurchase
plan
of
$1.4B,
which
will
continue
for
the
next
five
years.
Oct-­‐09
Oct-­‐10
Oct-­‐11
Oct-­‐12
Oct-­‐13
Oct-­‐14
Oct-­‐15
NOPAT
$1,564
$2,363
$3,303
$3,583
$4,016
$3,655
$3,308
Growth
51.2%
39.7%
8.5%
12.1%
-­‐9.0%
-­‐9.5%
NOWC
25,127
26,513
29,696
34,488
37,389
39,281
40,716
Net
Fixed
Assets
10,275
9,900
9,751
11,019
11,266
11,238
11,271
Total
Net
Inv
in
Op
Capital
$35,402
$36,413
$39,447
$45,507
$48,656
$50,519
$51,987
Growth
2.9%
8.3%
15.4%
6.9%
3.8%
2.9%
-­‐
Change
in
NOWC
1,386
3,184
4,792
2,901
1,892
1,435
-­‐
Change
in
NFA
(375)
(149)
1,268
247
(29)
34
FCFF
$1,353
$268
-­‐$2,476
$867
$1,792
$1,840
Growth
-­‐80.2%
-­‐1023.1%
-­‐135.0%
106.7%
2.7%
-­‐
After-­‐tax
interest
expense
500
503
508
478
501
517
+
Net
new
debt
(40)
2,156
5,718
2,037
1,098
1,100
FCFE
$812
$1,921
$2,734
$2,426
$2,389
$2,423
Growth
136.5%
42.3%
-­‐11.2%
-­‐1.5%
1.4%
($8.00)
($6.00)
($4.00)
($2.00)
$0.00
$2.00
$4.00
$6.00
2010
2011
2012
2013
2014E
2015E
$3.19
$0.64
($6.24)
$2.25
$4.85
$5.21
FCFF
per
share

14. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
14
Valuation
Deere
was
valued
using
multiples
and
a
3-­‐stage
discounting
cash
flow
model.
Based
on
multiples,
the
stock
is
slightly
overpriced
versus
other
firms.
On
a
DCF
basis,
the
stock
is
worth
$84.59,
which
is
below
its
current
price
of
$93.14.
Peer
multiple
comparisons
and
historical
comparisons
are
less
reliable.
There
are
few
similar
companies
in
the
industry
that
have
the
unique
business
model
of
a
joint
agricultural
and
construction
machinery
business,
and
the
firm’s
history
is
skewed
because
of
fluctuations
in
weather
patterns.
As
a
result,
I
place
the
most
weight
on
the
DCF
framework
and
value
the
stock
at
$84.59.
Trading
History
Figure
30
shows
that
the
shares
have
traded
in
the
last
10
years
at
an
average
of
12.4X
NTM.
Leading
up
to
the
financial
crisis,
the
shares
traded
above
of
the
average.
Since
2008,
the
NTM
P/E
has
risen
above
its
lows,
and
peaked
in
2009
on
cyclically
depressed
earnings.
Since
2011,
the
P/E
as
trended
upwards
to
its
10-­‐year
average
as
earnings
have
climbed.
Figure
30:
P/E
(NTM)
trading
history,
04/2004
-­‐
04/2012
Assuming
the
firm
maintains
a
10.0
NTM
P/E
at
the
end
of
2014,
it
should
trade
at
$85.40
by
the
end
of
the
year.
• 10.0
X
2014
EPS
of
$8.54
=
$85.40
Discounting
$85.40
back
to
today
at
a
10.0%
cost
of
equity
yields
a
price
of
$77.64.
Relative
Valuation
Deere
is
currently
trading
at
a
price
to
earnings
multiple
significantly
lower
than
its
peers
(TTM
P/E
of
11.4
vs.
15.4).
Compared
to
CAT,
its
closest
competitor,
is
at
16.3.
This
implies
that
Deere
has
lower
expected
growth;
however,
as
shown
in
figure
31,
Deere
currently
has
a
higher
EV/EBITDA
multiple
(11.8
vs.
8.8
for
industry).
Since
Deere
has
a
large
market
share
in
the
U.S.
and
Canada,
the
market
appears
to
be
pricing
in
that
it
will
be
able
to
maintain
and
entice
a
good
portion
of
the
customers
through
its
brand
name
and
reputation.
0
2
4
6
8
10
12
14
16
18
20
22
PE
NTM
Average
PE
NTM
Source:
FactSet
Deere
is
trading
below
its
average
forward
P/E

15. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
15
Figure
31:
EV/EBITDA
(NTM)
Figure
31
shows
that
DE
is
currently
trading
at
about
a
mid-­‐cycle
multiple
and
is
trading
2.0x
below
its
10-­‐year
average.
Figure
32:
Comp
sheet
11.2
11.2
13.8
15.3
12.0
15.6
13.5
11.7
10.4
10.8
11.75
13.7
7.6
8.1
8.3
8.7
7.1
9.3
8.7
7.4
6.4
7.7
8.32
8.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
DE
AVG
Current Market Price
Change Earnings
Growth LT
Debt/S&P
LTM
Dividend
Ticker Name Price Value 1
day 1
Mo 3
Mo 6
Mo 52
Wk YTD LTG NTM 2013 2014 2015 Pst
5yr Beta Equity Rating Yield Payout
CAT CATERPILLAR
INC $104.69 $66,774 (0.6) 6.2 21.5 23.5 23.9 15.3 10.0 7.0% 14.9% -­‐30.3% 19.9% 0.4% 1.64 132.0% A+ 2.33% 41.7%
DE DEERE
&
CO $93.14 $34,434 (0.8) 4.5 8.9 11.5 8.3 2.0 8.0 -­‐13.2% 14.7% 10.4% -­‐9.0% 14.1% 1.28 217.1% A 2.25% 22.1%
CMI CUMMINS
INC $147.18 $27,063 (1.3) 2.0 16.5 8.5 31.2 4.4 14.3 19.5% -­‐9.4% 1.8% 22.9% 15.5% 1.87 22.3% A-­‐ 1.51% 30.0%
PCAR PACCAR
INC $65.66 $23,286 (1.0) (2.9) 16.7 12.1 31.8 11.0 10.3 15.0% 9.1% 17.1% 12.4% 3.5% 1.89 64.5% B+ 2.52% 51.5%
AGCO AGCO
CORP $56.94 $5,347 (0.6) 5.4 7.3 (10.1) 11.3 (3.8) 9.7 -­‐10.1% -­‐11.1% 3.3% -­‐3.8% 8.0% 1.98 23.4% B 0.73% 6.8%
OSK OSHKOSH
CORP $56.07 $4,745 (1.6) (2.8) 10.0 4.7 40.5 11.3 7.7 11.6% 13.8% 38.3% 21.5% 68.6% 2.30 43.0% B 0.25% 8.2%
JOY JOY
GLOBAL
INC $60.39 $6,047 (1.1) 3.1 14.6 4.0 5.4 3.2 -­‐5.6 -­‐16.0% 24.7% -­‐54.5% 14.8% 7.6% 2.12 45.6% B+ 1.21% 16.9%
TRN TRINITY
INDUSTRIES $73.11 $5,665 (2.6) (0.2) 26.8 54.7 75.9 34.1 10.0 47.2% 32.1% 21.9% -­‐8.8% 5.4% 1.94 79.3% B+ 0.75% 12.7%
WAB WABTEC
CORP $73.83 $7,087 (2.2) (7.9) 1.1 11.7 42.1 (0.6) 15.0 16.8% 48.3% 34.2% 14.7% 17.7% 1.50 28.0% A 0.19% 4.8%
TWI TITAN
INTERNATIONAL
INC $16.48 $883 1.2 (10.4) (7.3) 11.4 (24.0) (8.3) 5.4 49.2% 71.3% -­‐79.4% 151.3% 7.9% 2.85 71.7% B 0.11% 5.3%
TTC TORO
CO $63.34 $3,573 (0.5) (1.5) 3.5 8.2 40.8 (0.4) 10.4 23.9% 15.1% 39.1% 12.1% 11.0% 0.71 65.6% A-­‐ 0.98% 26.9%
ASTE ASTEC
INDUSTRIES
INC $40.95 $936 (1.7) (6.9) 9.1 20.1 24.5 6.0 8.9 35.6% 32.1% 21.9% 21.4% -­‐9.6% 1.41 0.0% B 0.68% 23.6%
Average (1.1) (1.0) 10.7 13.4 26.0 6.2 8.7 15.5% 21.3% 2.0% 22.4% 12.5% 1.79 66.0% 1.13% 20.9%
Median (1.0) (0.8) 9.6 11.4 27.8 3.8 9.8 15.9% 15.0% 13.8% 14.7% 8.0% 1.88 55.1% 0.87% 19.5%
spx S&P
500
INDEX $1,863 (0.8) (0.1) 4.1 5.9 17.6 0.8 6.7% 6.9% 11.2%
NTM
P/E NTM TTM EV/
P/CF
Sales
Growth Book
Ticker Website ROE P/B #### 2013 2014 TTM NTM 2015 NPM P/S OM ROIC EBIT Current5-­‐yr NTM STM Pst
5yr Equity
CAT http://www.cat.com 19.3% 3.21 13.9 9.2 17.7 17.8 16.6 14.7 7.0% 1.20 8.2% 15.1 9.4 8.4 2.8% 5.3% 1.6% $32.63
DE http://www.deere.com 28.9% 3.36 12.7 11.5 11.1 10.1 11.6 12.2 8.9% 0.98 15.9% 11.6% 10.6 7.2 9.1 -­‐5.4% -­‐3.7% 5.9% $27.74
CMI http://www.cummins.com 23.5% 3.66 10.3 11.3 16.7 18.6 15.6 13.6 9.3% 1.56 10.1% 18.0% 15.4 14.2 11.7 7.6% 13.9% 3.8% $40.22
PCAR http://www.paccar.com 20.3% 3.51 15.5 13.7 18.0 19.9 17.3 16.0 7.9% 1.46 10.9% 11.3% 15.4 11.1 10.6 6.7% 9.9% 2.7% $18.73
AGCO http://www.agcocorp.com 13.1% 1.38 11.0 6.9 10.4 9.5 10.5 10.8 4.9% 0.50 8.4% 12.6% 6.5 6.3 7.7 -­‐3.1% -­‐3.2% 5.1% $41.19
OSK http://www.oshkoshtruck.com 17.0% 2.32 7.2 11.6 15.4 15.3 13.7 12.6 5.1% 0.64 7.2% 10.8% 10.1 10.8 7.7 -­‐9.3% 0.2% 1.4% $24.13
JOY http://www.joyglobal.com 12.9% 2.24 13.7 9.4 18.6 14.6 17.4 16.2 9.2% 1.29 17.3% 13.3% 7.7 11.7 12.1 -­‐19.2% 3.7% 8.0% $26.93
TRN http://www.trin.net 21.7% 2.36 22.9 11.9 10.5 16.0 10.8 11.6 10.1% 1.30 17.2% 8.6% 11.1 8.2 10.6 18.7% 3.6% 2.4% $31.03
WAB http://www.wabtec.com 22.1% 4.47 21.9 18.2 21.2 23.7 20.3 18.5 11.6% 2.68 17.0% 16.0% 16.7 18.9 15.4 14.0% 8.0% 10.3% $16.53
TWI http://www.titan-­‐intl.com 4.4% 1.27 36.7 10.0 42.9 43.4 29.1 17.1 1.5% 0.42 3.3% 3.2% 12.5 8.3 9.6 -­‐5.4% 10.4% 15.9% $12.98
TTC http://www.toro.com 51.8% 10.47 16.8 19.5 21.4 25.0 20.2 19.1 8.1% 1.75 11.0% 27.7% 16.4 17.8 14.5 6.8% 6.7% 1.7% $6.05
ASTE http://www.astecindustries.com 8.2% 1.62 19.5 20.5 21.0 26.7 19.7 17.3 4.7% 1.01 5.9% 7.0% 16.4 13.0 10.6 9.6% 6.8% -­‐0.9% $25.24
Average 20.3% 3.32 16.8 12.8 18.7 20.0 16.9 15.0 7.4% 1.23 11.3% 12.4% 12.8 11.4 10.7 2.0% 5.1% 4.8%
Median 19.8% 2.78 14.7 11.6 17.8 18.2 17.0 15.4 8.0% 1.24 10.9% 11.4% 13.8 11.0 10.6 4.8% 6.0% 3.3%
spx S&P
500
INDEX 13.0 13.8 16.9 15.2
Source:
FactSet

16. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
16
A
more
thorough
analysis
of
P/B
and
ROE
is
shown
in
figure
33.
The
calculated
R-­‐squared
indicates
that
64%
of
the
change
in
P/B
is
explained
through
NTM
ROE.
In
comparison
to
its
peers,
Deere
has
the
highest
ROE
and
is
in
the
middle
of
the
group
in
P/B,
so
it
appears
to
be
undervalued
versus
the
broad
spectrum
of
peers.
Assuming
the
relationship
holds
going
forward,
the
fair
value
for
Deere
is
$83.07
at
the
beginning
of
2013.
• Estimated
P/B
=
Estimated
2013
ROE
(0.289)
*
11.639
+
.6264
=
3.9900
• Target
Price
=
Estimated
P/B
*
2013
BVPS
($30.35)
=
$121.10
Figure
33:
P/B
versus
NTM
ROE
for
DE
and
peers
As
a
final
comparison,
I
also
created
a
composite
percentile
ranking
of
several
valuation
and
fundamental
metrics
(Figure
34).
Higher
ranks
imply
higher
valuation
and
better
fundamentals.
If
a
firm
falls
directly
on
the
trend
line,
it
is
considered
to
be
fairly
valued
relative
to
the
valuation
and
fundamental
metrics
used.
The
analysis
is
shown
below.
A
composite
of
2013
earnings
growth,
1/beta,
NTM
ROE
and
TTM
NPM
was
compared
to
an
equal
weighted
composite
of
2013
EPS,
P/B
and
P/S.
Figure
35
illustrates
DE
appears
to
be
slightly
undervalued
according
to
the
composite
ranking.
Figure
34:
Composite
relative
valuation
y
=
11.639x
+
0.6264
R²
=
0.64315
0
1
2
3
4
5
0%
5%
10%
15%
20%
25%
30%
35%
P/B
ROE
Weight 20% 10% 25% 25% 20% 20% 40% 40%
Earnings
1/ NTM TTM Sales
Growth
P/E P/B P/S
Ticker Name Grow
2013 Beta ROE NPM NTM 2013 Fund Value
DE DEERE
&
CO 31% 41% 52% 73% 36% 34% 23% 25% 49% 26%
Cat CATERPILLAR
INC 32% 25% 31% 55% 58% 17% 21% 35% 42% 26%
CMI CUMMINS
INC 2% 17% 40% 78% 71% 33% 26% 50% 46% 37%
PCAR PACCAR
INC 25% 17% 33% 63% 68% 50% 25% 47% 44% 38%
AGCO AGCO
CORP 0% 15% 18% 33% 42% 0% 1% 4% 23% 2%
OSK OSHKOSH
CORP 30% 8% 27% 36% 26% 35% 12% 10% 28% 16%
JOY JOY
GLOBAL
INC 43% 11% 18% 76% 0% 19% 11% 38% 33% 23%
TRN TRINITY
INDUSTRIES 52% 16% 36% 85% 100% 37% 11% 38% 62% 27%
WAB WABTEC
CORP 72% 30% 37% 100% 88% 83% 35% 100% 69% 71%
TWI TITAN
INTERNATIONAL
INC 100% 0% 0% 0% 36% 23% 0% 0% 27% 5%
TTC TORO
CO 32% 100% 100% 65% 68% 93% 100% 59% 71% 82%
ASTE ASTEC
INDUSTRIES
INC 52% 34% 8% 31% 76% 100% 4% 26% 39% 32%
Weighted
Fundamental
Range Valuation
Range
DE
Source:
FactSet
Deere
is
slightly
undervalued
using
relative
valuation

17. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
17
Figure
35:
Composite
relative
valuation
Discounted
Cash
Flow
Analysis
A
three
stage
discounted
cash
flow
model
was
also
used
to
value
Deere.
For
the
purpose
of
this
analysis,
the
company’s
cost
of
equity
was
calculated
to
be
10.0%
using
the
Capital
Asset
Pricing
Model.
The
underlying
assumptions
used
in
calculating
this
rate
are
as
follows.
• The
risk
free
rate,
as
represented
by
the
ten-­‐year
Treasury
bond
yield,
is
2.70%.
• A
five-­‐year
adjusted
Beta
of
1.1
was
utilized
since
the
company
has
more
cyclical
risk
than
the
market.
• A
long-­‐term
market
rate
of
return
of
10%
was
assumed,
since
historically,
the
market
has
generated
an
annual
return
of
about
10%.
Given
the
above
assumptions,
the
cost
of
equity
is
10.7%
(2.70
+
1.2
(10.0
–
2.7)).
Stage
One
-­‐
The
model’s
first
stage
simply
discounts
fiscal
years
2014
and
2015
free
cash
flow
to
equity
(FCFE).
These
per
share
cash
flows
are
forecasted
to
be
$8.85
and
$7.52,
respectively.
Discounting
these
cash
flows,
using
the
cost
of
equity
calculated
above,
results
in
a
value
of
$14.13
per
share.
Thus,
stage
one
of
this
discounted
cash
flow
analysis
contributes
$14.13
to
the
value.
Stage
Two
-­‐
Stage
two
of
the
model
focuses
on
fiscal
years
2015
to
2020.
During
this
period,
FCFE
is
assumed
to
grow
at
an
annual
rate
of
7.1%
in
2017
-­‐2020.
Net
fix
assets
is
growing
again
in
2016
due
to
new
factory
buildings
scheduled
to
be
constructed.
The
resulting
cash
flows
are
then
discounted
using
the
company’s
10.7%
cost
of
equity
Figure
36:
FCFE
and
discounted
FCFE
for
Deere
2014
2015
2016
2017
2018
2019
2020
FCFE
$8.85
$7.52
$1.94
$2.08
$2.23
$2.39
$2.56
Discounted
FCFE
$7.99
$6.13
$1.43
$1.38
$1.34
$1.30
$1.25
When
added
together,
these
discounted
cash
flows
total
$6.70
Stage
Three
–
For
the
terminal
value
of
the
company,
fiscal
year
2014
and
2015
earnings
per
share
are
forecasted
to
be
$8.54
and
$7.90,
respectively.
It
was
then
assumed
that
earnings
per
share
would
grow,
from
these
forecasted
numbers,
at
an
annual
rate
of
7.1%
for
the
next
five
years
(figure
35).
R²
=
0.77299
y
=
1.284x
-­‐
0.2506
0.0
0.2
0.4
0.6
0.8
1.0
0.0
0.2
0.4
0.6
0.8
Valuagon
(P/E,
P/B,
P/S)
Fundamental
13'
Earnings,
Beta,
ROE,
NPM)
Source:
FactSet
DE
Lack
of
quality
comparables
makes
it
difficult
to
use
relative
valuation

18. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
18
Figure
37:
EPS
estimates
for
2014-­‐2020
2014
2015
2016
2017
2018
2019
2020
EPS
$8.54
$7.90
$8.47
$9.07
$9.72
$10.41
$11.16
Stage
three
of
the
model
also
requires
an
assumption
regarding
the
company’s
terminal
price
to-­‐
earnings
ratio.
For
the
purpose
of
this
analysis,
it
is
assumed
that
as
the
rate
of
U.S.
and
Canada
sales
matures,
its
price-­‐to-­‐earnings
ratio
will
converge
to
slightly
less
than
the
historical
average.
Therefore,
a
price-­‐to-­‐earnings
ratio
of
11.8
is
assumed
at
the
end
of
DE’s
terminal
year,
lower
than
DE’s
12-­‐year
average
of
12.39.
Given
the
assumed
terminal
earnings
per
share
of
$11.16
and
a
price
to
earnings
ratio
of
11.8,
a
terminal
value
of
$131.65
per
share
is
calculated.
Using
the
10.7%
cost
of
equity,
this
number
can
be
discounted
to
a
present
value
of
$64.50
Total
Present
Value
–
Given
the
above
assumptions
and
utilizing
a
three
stage
discounted
cash
flow
model
(Figure
36),
an
intrinsic
value
of
$85.33
per
share
is
calculated
($14.13+
$6.70+
$64.50).
Given
DE’s
current
price
of
$93.17,
this
model
indicates
that
the
stock
is
overvalued.
Figure
38:
3-­‐stage
DCF
model
Year
1 2 3 4 5 6 7
First
Stage
Second
Stage
Cash
flows 2014 2015 2016 2017 2018 2019 2020
Sales $37,700 $37,812 $39,703 $41,688 $43,773 $45,961 $48,259
Growth 0.3% 5.0% 5.0% 5.0% 5.0% 5.0%
NOPAT $3,655
$3,308
$3,474
$3,647
$3,830
$4,021
$4,222
%
of
sales 9.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7%
-­‐
Change
in
NWC -­‐86 101 1695 1780 1869 1962 2060
NWC
EOY 33800 33901 35596 37375 39244 41206 43267
Growth
NWC 0.3% 5.0% 5.0% 5.0% 5.0% 5.0%
NWC
/
S
(EOY) 89.7% 89.7% 89.7% 89.7% 89.7% 89.7% 89.7%
-­‐
Chg
NFA -­‐29 34 564 592 621 652 685
NFA
EOY
11,238
11,271
11,835
12,427
13,048
13,701
14,386
Growth
NFA 0.3% 5.0% 5.0% 5.0% 5.0% 5.0%
S
/
NFA
(EOY)
3.35
3.35
3.35
3.35
3.35
3.35
3.35
Total
growth
inv
cap -­‐114 135 2259 2372 2490 2615 2745
Total
inv
cap 45037 45172 47431 49802 52292 54907 57652
S
/
IC
(EOY)
0.84
0.84
0.84
0.84
0.84
0.84
0.84
ROIC
(EOY) 8.1% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3%
FCFF $3,769
$3,174
$1,215
$1,276
$1,339
$1,406
$1,477
%
of
sales 10.0% 8.4% 3.1% 3.1% 3.1% 3.1% 3.1%
Growth -­‐15.8% -­‐61.7% 5.0% 5.0% 5.0% 5.0%
-­‐
Interest
(1-­‐tax
rate) 501 517 542 569 598 628 659
Growth 3.1% 5.0% 5.0% 5.0% 5.0% 5.0%
FCFE $3,269
$2,657
$673
$706
$742
$779
$818
%
of
sales 8.7% 7.0% 1.7% 1.7% 1.7% 1.7% 1.7%
Growth -­‐18.7% -­‐74.7% 5.0% 5.0% 5.0% 5.0%
/
No
Shares 369.2 353.3 346.2
339.3
332.5
325.9
319.4
Growth -­‐4.3% -­‐2.0% -­‐2.0% -­‐2.0% -­‐2.0% -­‐2.0%
FCFE $8.85 $7.52 $1.94 $2.08 $2.23 $2.39 $2.56
Growth -­‐15.0% -­‐74.2% 7.1% 7.1% 7.1% 7.1%
*
Discount
factor 0.90
0.82
0.74
0.67
0.60
0.54
0.49
Discounted
FCFE $7.99 $6.13 $1.43 $1.38 $1.34 $1.30 $1.25
Deere
is
fairly
valued
with
DCF
analysis,
with
an
intrinsic
value
of
$85.33

19. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
19
Business
Risks
Deere
is
currently
trading
above
its
intrinsic
value;
however,
there
are
several
risks
to
the
firm
which
could
affect
my
thesis.
The
most
significant
of
these
risk
are
described
below:
• Cyclical
Demand,
• Government
Regulation,
• Foreign
Currency,
• Building
Construction,
and
• Weather.
Cyclical
Demand
The
average
price
realization
is
highly
correlated
with
production
volume
in
both
up
and
down
cycles.
The
cycle
demand
effects
inventory
buildups,
production,
and
plant
expansions.
Government
Regulation
Political
and/or
monetary
instability
and
adverse
changes
in
government
regulations
may
impact
operations.
Foreign
Currency
Operating
results
are
sensitive
to
changes
in
the
foreign
exchange
value
of
the
U.S.
dollar
particularly
versus
the
Euro,
British
pound
sterling,
Canadian
dollar,
Australian
dollar,
and
Brazilian
real.
The
expanding
international
manufacturing
footprint
helps
mitigate
risks
to
margins.
Building
Construction
Demand
for
certain
Deere
products
(e.g.,
earthmoving
machinery)
is
influenced
by
changes
in
the
absolute
and
relative
levels
of
residential
and
non-­‐residential
building
construction
activity,
primarily
in
the
U.S.
Third
Stage
Terminal
value
P/E
Net
income $3,154 $2,792 $2,931 $3,078 $3,232 $3,393 $3,563
%
of
sales 8.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4%
EPS $8.54 $7.90 $8.47 $9.07 $9.72 $10.41 $11.16
Growth -­‐7.5% 7.1% 7.1% 7.1% 7.1% 7.1%
Terminal
P/E 11.80
*
Terminal
EPS $11.16
Terminal
value $131.65
*
Discount
factor 0.49
Discounted
terminal
value $64.50
Summary
First
stage $14.13 Present
value
of
first
2
year
cash
flow
Second
stage $6.70 Present
value
of
year
3-­‐7
cash
flow
Third
stage $64.50 Present
value
of
terminal
value
P/E
Value
(P/E) $85.33 =
value
at
beg
of
fiscal
yr 2014

20. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
20
Weather
Adverse
weather
can
depress
sales
of
farm
machinery
and
lawn
and
grounds
care
equipment
and
landscaping
supplies.
Agricultural
Commodity
Prices
Lower
farm
commodity
prices
imply
weaker
crop
receipts
and
can
adversely
affect
equipment
demand.
Stock
prices
for
farm
machinery
manufacturers
are
typically
correlated
with
agricultural
commodity
prices,
and
highly
correlated
with
major
changes
in
the
average
price
level
for
major
field
crops.
DE
has
historically
been
correlated
with
prices
for
corn
(the
largest
U.S.
cash
crop).

21. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
21
Appendix
1:
Income
statement
model
Income
Statement
Data
(in
millions,
source:
10K)
Oct-­‐09 Oct-­‐10 Oct-­‐11 Oct-­‐12 Oct-­‐13 Oct-­‐14 Oct-­‐15
Revenue
Sales
23,112
26,005
32,013
36,157
37,795
37,700
37,812
YoY
Growth -­‐23.0% 11.1% 18.8% 11.5% 4.3% -­‐0.3% 0.3%
Equipment 20,756
23,573
29,466
33,501
34,998
34,994
35,167
YoY
Growth -­‐24.3% 12.0% 20.0% 12.0% 4.3% 0.0% 0.5%
Finance
and
Interest
Income 1,842
1,825
1,923
1,981
2,115
2,030
1,990
YoY
Growth -­‐12.3% -­‐0.9% 5.1% 3.0% 6.3% -­‐4.2% -­‐2.0%
Other
Income 514
606
624
675
682
676
655
YoY
Growth -­‐10.0% 15.2% 2.8% 7.6% 1.1% -­‐1.0% -­‐3.1%
Sales
Inside
US
&
Canada 14,823
16,611
19,214
22,737
23,852
23,792
23,863
Sales
Outside
US
&
Canada 7,961
9,036
12,415
12,999
13,495
13,461
13,501
Other
revenues 328
358
384
421
448
-­‐
-­‐
Cost
of
sales
(Equipment) 16,255
17,399
21,919
25,008
25,667
25,859
26,214
Gross
Margin 6,857
$8,606 $10,093 $11,149 $12,128 $11,840 $11,598
Expenses
SG&A 2,781
2,969
3,169
3,417
3,606
3,785
3,985
R&D 977
1,052
1,226
1,434
1,477
1,536
1,598
Other
expense 718
748
716
782
821
853
888
Earnings
before
interest,
tax,
and
other $2,382 $3,837 $4,982 $5,517 $6,225 $5,666 $5,128
Interest
expense 1,042
811
759
783
741
776
801
Income
from
cont.
op
before
tax $1,339 $3,025 $4,223 $4,734 $5,483 $4,889 $4,327
Income
taxes 460
1,162
1,424
1,659
1,946
1,735
1,536
Income
from
continuing
operations 879
1,864
2,799
3,075
3,538
3,154
2,792
Equity
in
income
(loss)
of
unconsolidated
affiliates,
net
of
tax
(6)
11
9
(3)
0
0
0
Net
income $873 $1,874 $2,808 $3,072 $3,538 $3,154 $2,792
Dividends 473
484
593
698
753
800
850
EBIT $2,382 $3,837 $4,982 $5,517 $6,225 $5,666 $5,128
Basic
earnings
per
share
(cont.
op.) $2.08 $4.40 $6.71 $7.74 $9.18 $8.54 $7.90
Diluted
earnings
per
share
(cont.
op.) $2.07 $4.35 $6.63 $7.66 $9.09 $8.45 $7.81
Basic
earnings
per
share
$2.06 $4.42 $6.73 $7.74 $9.18 $8.54 $7.90
Diluted
earnings
per
share
$2.06 $4.37 $6.65 $7.65 $9.09 $8.45 $7.81
Shares
Basic 422.8
424.0
417.4
397.1
385.3
369.2
353.3
Diluted 424.4
428.6
422.4
401.5
389.2
373.2
357.3

22. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
22
Appendix
2:
Balance
sheet
Balance
Sheet
Data
(in
millions,
source:
10K) Oct-­‐09 Oct-­‐10 Oct-­‐11 Oct-­‐12 Oct-­‐13 Oct-­‐14 Oct-­‐15
ASSETS
Current
assets
Cash
$4,652 $3,791 $3,647 $4,652 $3,504 $5,481 $6,815
Marketable
securities 192
228
787
1,470
1,625
1,818
2,059
Receivables 21,883
24,349
27,502
31,426
35,039
34,951
35,055
Equipment
on
operating
leases 1,733
1,936
2,150
2,528
3,152
3,144
3,154
Inventories 2,397
3,063 4,371
5,170
4,935
4,922
4,937
Operating
assets
ex
cash 26,014
29,348
34,022
39,124
43,126
43,017
43,146
Total
current
assets $30,857 $33,367 $38,457 $45,247 $48,255 $50,316 $52,020
Property
and
intangibles,
gross 5,618
8,808
9,636
10,416
11,203
11,175
11,208
Accumulated
depreciation
&
amortization (873)
(4,900)
(5,156)
(5,299)
(5,659)
(5,645)
(5,662)
Property
and
intangibles,
net 4,745
3,908
4,480
5,117
5,544
5,530
5,546
Goodwill 1,037
999
1,000
921
845
843
845
Deferred
income
taxes 2,805
2,477
2,859
3,280
2,325
2,320
2,326
Other
assets,
Retirment
benefits,
Assets
held
for
sale,
Investments
in
unconsolidated
affiliates1,689
2,517
1,413
1,701
2,552
2,546
2,553
Total
gross
fixed
assets 11,149
14,800
14,907
16,318
16,925
16,883
16,933
Net
fixed
assets 10,275
9,900
9,751
11,019
11,266
11,238
11,271
Total
assets $41,133 $43,267 $48,207 $56,266 $59,521 $61,554 $63,291
LIABILITIES
AND
SHAREHOLDERS'
EQUITY
Current
liabilities
Short-­‐term
debt $7,214 $7,738 $9,747 $9,967 $12,898 $12,998 $13,098
Accounts
payable 5,371 6,482
7,805
9,124
9,081
9,058
9,085
Deferred
income
taxes 167 144
168
164
160
160
160
Operating
liabilities 5,539
6,626
7,973
9,289
9,241
9,217
9,245
Total
current
liabilities $12,753 $14,364 $17,721 $19,256 $22,139 $22,215 $22,343
Long-­‐term
debt 17,392 16,815
16,960
22,453
21,578
22,578
23,578
Retirement
benefits
and
other
liabilities
6,170
5,785
6,712
7,695
5,537
5,556
5,624
Total
liabilities $36,314 $36,963 $41,393 $49,404 $49,254 $50,349 $51,545
Noncontrolling
interests -­‐
13
15
20
2
-­‐
-­‐
Common
shareholders'
equity
Common
stock 2,996
3,106
3,252
3,352
3,524
3,524
3,524
Retained
earnings 10,981
12,353
14,519
16,875
19,646
22,000
23,942
Accumulated
other
comprehensive
loss (3,593)
(3,380)
(3,678)
(4,572)
(2,693)
(2,693)
(2,693)
Subtotal $10,383 $12,080 $14,093 $15,656 $20,477 $22,831 $24,773
Treasury
stock 5,565
5,790
7,293
8,814
10,211
11,626
13,026
Common
shareholders'
equity $4,819 $6,290 $6,800 $6,842 $10,266 $11,205 $11,747
Total
liabilities
and
shareholders'
equity $41,133 $43,267 $48,207 $56,266 $59,521 $61,554 $63,291

23. INVESTMENT
MANAGEMENT
CERTIFICATE
PROGRAM
May
2,
2014
23
Appendix
3:
Ratios
Ratios Oct-­‐09 Oct-­‐10 Oct-­‐11 Oct-­‐12 Oct-­‐13 Oct-­‐14 Oct-­‐15
Profitability
Gross
margin 29.7% 33.1% 31.5% 30.8% 32.1% 31.4% 30.7%
Operating
(EBIT)
margin 10.3% 14.8% 15.6% 15.3% 16.5% 15.0% 13.6%
Net
profit
margin 3.8% 7.2% 8.8% 8.5% 9.4% 8.4% 7.4%
Activity
FA
(gross)
turnover 2.00 2.16 2.32 2.27 2.23 2.24
Total
asset
turnover 0.62 0.70 0.69 0.65 0.62 0.61
Inventory
Turnover 6.37 5.90 5.24 5.08 5.25 5.32
Inventory
processing
period 57 62 70 72 70 69
Accounts
Receivables
Turnover 1.12 1.23 1.23 1.14 1.08 1.08
Receivables
collection
period 324 296 297 321 339 338
Operating
Cycle 382 357 367 393 408 407
Accounts
Payables
Turnover 2.94 3.07 2.95 2.82 2.85 2.89
Payable
payment
period 124 119 124 129 128 126
Cash
Conversion
Cycle 257 239 244 263 280 280
Liquidity
Op
asset
/
op
liab 5.54
5.00
4.72
4.71
5.05
5.26
5.40
NOWC
Percent
of
sales 99.3% 87.8% 88.8% 95.1% 101.7% 105.8%
Solvency
Debt
to
assets 59.8% 56.7% 55.4% 57.6% 57.9% 57.8% 57.9%
Other
liab
to
assets 15.0% 13.4% 13.9% 13.7% 9.3% 9.0% 8.9%
Toal
debt
to
assets 74.8% 70.1% 69.3% 71.3% 67.2% 66.8% 66.8%
Toal
debt
to
assets 78.3% 72.8% 71.4% 76.6% 67.8% 66.8% 66.7%
Debt
to
EBIT 10.33
6.40
5.36
5.88
5.54
6.28
7.15
EBIT/interest 2.28
4.73
6.56
7.05
8.40
7.30
6.40
ROIC
NOPAT
to
sales 9.1% 10.3% 9.9% 10.6% 9.7% 8.7%
Sales
to
IC 0.72
0.84
0.85
0.80
0.76
0.74
Total 6.6% 8.7% 8.4% 8.5% 7.4% 6.5%
ROE
5-­‐stage
EBIT
/
sales 14.8% 15.6% 15.3% 16.5% 15.0% 13.6%
Sales
/
avg
assets 0.62
0.70
0.69
0.65
0.62
0.61
EBT/EBIT 78.9% 84.8% 85.8% 88.1% 86.3% 84.4%
Net
income
(cont)
/EBT 61.6% 66.3% 65.0% 64.5% 64.5% 64.5%
ROA 4.4% 6.1% 5.9% 6.1% 5.2% 4.5%
Avg
assets
/
avg
equity 7.60
6.99
7.66
6.77
5.64
5.44
ROE 33.6% 42.8% 45.1% 41.4% 29.4% 24.3%
3-­‐stage
Net
income
(cont)
/
sales 7.2% 8.7% 8.5% 9.4% 8.4% 7.4%
Sales
/
avg
assets 0.62
0.70
0.69
0.65
0.62
0.61
ROA 4.4% 6.1% 5.9% 6.1% 5.2% 4.5%
Avg
assets
/
avg
equity 7.60
6.99
7.66
6.77
5.64
5.44
ROE 33.6% 42.8% 45.1% 41.4% 29.4% 24.3%
Payout
Ratio 25.8% 21.1% 22.7% 21.3% 25.4% 30.4%
Retention
Ratio 74.2% 78.9% 77.3% 78.7% 74.6% 69.6%
Sustainable
Growth
Rate 24.9% 33.7% 34.8% 32.6% 21.9% 16.9%