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GLOBAL Investment Research Challenge

This research report provides an in-depth analysis of Deere & Co., addressing key aspects of its operations in agriculture, commercial services, and equipment financing. It examines the company's financial leverage, dependence on crop prices, and exposure to housing market volatility. The report evaluates performance metrics such as return on assets (ROA) against the weighted average cost of capital (WACC) and offers a market risk assessment. Based on the analysis, recommendations for underperformance indicate potential overvaluation concerns and an anticipated decline in stock value.

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GLOBAL Investment Research Challenge

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  1. GLOBALInvestment Research Challenge Greg Goin Brad Kuhn Mark Spurgeon Ken Sturgis Tim Su

  2. Company Overview Equipment Operations • Agricultural • Commercial/Consumer • Construction/Forestry Financial Services • Dealer Financing • Crop Mitigation • Wind Energy Generation

  3. Industry Overview • Dependence on Crop Prices • Exposure to Recent Housing Collapse • BRIC Expansion • Competitive Industry • HHI : 0.31

  4. Change in Institutional Holdings * Institutional Ownership Makes Up 75% Of Shareholder Base

  5. Overvaluation High Leverage Exposure to Housing Market ROA vs. WACC Market Volatility Recommendation: Underperform

  6. Stock Performance * SP 500 10x

  7. Fundamental Analysis • D/E • 4.9 Deere vs. 2.9 Industry • Inflated ROE Due To High Debt Levels • ROA vs. WACC • 5.3% vs. 4.4% • Day Sales Receivable • 256 vs. 179

  8. Increased volatility in stock price due to increasing beta Deere and Co. Beta

  9. CAPM • Beta: 1.18 • 5 Year Treasury Rate as of 12/31/2007: 4% • Market Risk Premium: 7% • E(R): 12% *All Data is from 2003-2007

  10. Net Farm Income To Stock Price

  11. Valuation • Constant Growth Model -Value of Stock: $27.18 • Projections From Analysis On Net Farm Income • 2009 Projection 38.17 • 2010 Projection 40.14

  12. Summary • Exposure to Unsystematic Risk • Increasingly High Leverage Levels • Saturated Market Limiting Domestic Growth • Valuation Models Show Overvaluation

  13. Appendix Fundamental Analysis

  14. Net Farm Income Farm Income In Billions

  15. Income Statement Cont’d

  16. Balance Sheet Cont’d

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