Deere & Co (DE) DCF Valuation: Is The Stock Undervalued?
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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 (DE).
Profile
Deere 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 Performance
Over the past twelve months the share price is up 21.08%.
Source: Google Finance
Inputs
- Discount Rate: 7%
- Terminal Growth Rate: 2%
- WACC: 7%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2025 | 5 | 4.67 |
| 2026 | 5.45 | 4.76 |
| 2027 | 5.93 | 4.84 |
| 2028 | 6.46 | 4.93 |
| 2029 | 7.04 | 5.02 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 143.62 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 102.40 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 24.22 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 126.62 billion
Net Debt
Net Debt = Total Debt – Total Cash = 56.98 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 69.64 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $251.40
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $251.40 | $476.56 | -89.56% |
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%.
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