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GLOBAL Investment Research Challenge

GLOBAL Investment Research Challenge. Greg Goin Brad Kuhn Mark Spurgeon Ken Sturgis Tim Su. Company Overview. Equipment Operations Agricultural Commercial/Consumer Construction/Forestry. Financial Services Dealer Financing Crop Mitigation Wind Energy Generation. Industry Overview.

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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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