Deere and Company Valuation Project

The history of Deere & Company dates back to 1837 year, when the corporation was founded by John Deere in Grand Detour in the U.S. state of Illinois. At present, the firm has its headquarters located in Moline Illinois. The company operates in heavy equipment industry, producing machinery products in several fields, such as in agriculture, forestry, and construction. In particular, it produces consumer and commercial equipment, automobiles, and diesel engines. The firm gets publicly traded in the New York Stock Exchange under the symbol DE, and has been ranked among the S&P 500 components.

As of today, the company's operations have gone global with core subsidiaries functioning in Europe, Asia, New Zealand, Africa, and North and South America. As such, the current paper analyzes the firm's financial performance, competition, growth, and market. The main emphasis is made on the revenue and income, as well as stock and ratio performance. After all the evaluations, the paper finally draws a conclusion depicting the performance level of the business, showing its financial worthiness, growth prospects, market share, strengths, and weaknesses. Further, the conclusion offers suggestions on the corporation's competitive environment both at present as well as in the future.

 

Deere & Company Competitive Environment

The firm has four segments of its equipment manufacturing business, including agricultural, construction and forestry, commercial and consumer, as well as credit. In each of the sectors, it faces stiff competition from other industrial players. However, for the overall business competition, the main challengers are CNH Industrial N.V. (CNHI) and Caterpillar (CAT). The core competitive factors in the industry comprise of innovation and quality, customer service and price, distribution, and product performance.

Most competitors perfect these areas to enhance their competition. For instance, in the agriculture segment, other global competitors include AGCO Corporation Toro Company, and Kubota Tractor Corporation. Again, the financial competition of the firm indicates some average performance in comparison to competitors. For instance, as of March 2016, the company had registered a gross margin almost similar to that of the industry recording it at 0.23. However, in terms of revenue, the company had showed a decline from the year 2013 to 2015. Nevertheless, that could have resulted due to the industrial crisis as the drop was as well registered for the competitors and the entire industry.

Revenue and Income Growth

In the last three years, including 2015, 2014, and 2013, the industrial performance has become shaky with both revenues as well as income showing a downward trend. For example, revenues fell by 4.57% from 2013 to 2014, and further by 19.97% to 2015. Similarly, the income depicted a downward trend, for both Deere & Company and for most of its competitors. Of the total revenue collected in July 2015, the agricultural equipment accounted for 69.9% while construction and forestry, as well as credit held a 20.17% and 8.38% respectively (CSIMarket).

The remaining 1.55% was the revenue generated by all other segments. On the other hand, the income percentages over the same period for sectors were 8.89%, 8.42%, and 37.58 for agricultural equipment, construction and forestry, as well as credit in that order. The analysis proves the importance of each segment in driving the growth of the company. For the credit department, it accounts for 5.59% of the market with the biggest challengers being General Electric Motors, which takes 54.63% (Yahoo Finance). Commercial and consumer sector, on the other hand, has the company accounting for less than 1% of the market share.

However, construction and forestry take 10.38% with the core competitors being CNH Industrial N.V., and Emerson Electric Co, and Caterpillar Inc. The agricultural equipment has become a core source of revenue for Deere & Company, with the market share standing at 41.32% (United States Securities and Exchange Commission, 2014). That makes it the main player with the chief challenger being CNH Industrial N.V., whose holding has become recorded as 45.54% (Yahoo Finance, 2016). Although the firm's growth has been recorded as negative, its current data and future prospects indicate better performances than those of the entire industry. Further, a P/E growth rate forecast showed a decreasing trend for both 2016 and 2017. However, in the latter year, the percentage of decline appeared to be much lower in comparison to the previous year.

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On the other hand, the PE ratios posted a positive progress rising from 21.00 to 21.53 for both 2016 and 2017 respectively. Further, the company's earnings per share (EPS) reduced by 34.33% over the third quarter of 2015 reaching $1.53. Nevertheless, income per share grew by about 35.23% in construction and mining machinery industry, although it posted a reduction below 77.1% for the capital goods segment (Reuters). At the same time, Deere & Company had trailed the industry. Despite that, prospective improvement has remained a possibility owing to the expanding market demand.

Porter's Five Forces

Threats by New Entrants

At the moment, indicators from market as well as financial analysis show unlikelihood of any potential competitor entering the market. First, most industries attract new investors based on the increasing customer base as well as potential profitability in the future. Unfortunately, that does not happen in the heavy equipment at present. As per the financial records, revenues and income have experienced sharp decline. Moreover, the growth rate has in the recent years posted negative progression. That means the industry was no longer developing but losing in its advancement strategy. With such challenges, investors would avoid putting their money in the industry at present as returns remain minimal and are on a declining trend.

Threats by Substitute Services and Products

As the technology in the manufacturing of machinery continues to grow, Deere & Company face huge challenges. Competitors such as Caterpillar and CNH Industrial N.V. have produced equally good products and some times better ones. Further, they have created a well-known brand name helping them to market their product at ease. That has posed a danger as the market get flooded with products from which consumers can choose from. Availability of the substitutes from rival firms has also contributed to the decline of sales and hence, the revenue. Furthermore, the company's distribution channels have not fully developed, thus leading to low market supply. Moreover, the availability of buyer information has become a challenge. Although consumers acquire such data from the corporation, that rarely happens to most prospective buyers.

Bargaining Power of Suppliers

Due to the rising number of industries and companies competing for the same raw materials, suppliers have maintained an increasing price to the materials. That has eventually led to high cost of production for the machinery. Again, their limited numbers have held the consuming companies at hostage with no ability to switch from one to the other at will. As such, the suppliers have in a way become controllers of the industry.

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The Buyer Power

For Deere & Company business, it has become quite impossible for the buyer to influence the prices downwards. In fact, the higher and constant demand may only contribute to the rise of the machinery costs. Further, the firm has maintained a manageable level of prices that remain attractive to its customer base. Besides that, there have also been numerous groups of buyers from the company, comprising of individuals, and institutions. That has helped reduce buyer monopoly, who may dictate the terms of their purchases.

Competitive Rivalry

The market for heavy equipment industry has become heavily flooded. In some segments, Deere & Company has become outshone by several other corporations. However, in agricultural machinery production, the firm holds about 41% of the market giving it some level of control of the market. Nevertheless, in the segments where the market share remains low, other competitors get to influence its market.

SWOT Analysis

Strength

Despite having stiff competition, the company has maintained a strong financial position as well as an extraordinary asset leverage. That indicates its ability to continue operations without the risk of closing down or lacking funds. Secondly, it has a huge labor force of about 55,000 skilled and professional workers. Thirdly, the firm has diversified its product base portfolio allowing it balance its sources of revenue and not get too dependent on one. Forth, it operates a tremendous Customer Relations Management system, allowing it to retain as well as expand its consumer base. Finally, it has become one of the leading forestry, agricultural, and construction equipment producer (Dahlstrom and Dahlstrom).

Weaknesses

The corporation has restricted global brand awareness as well as penetration in comparison to some other industrial players such as CAT. Secondly, it has a complex IT communications and network operations to operate fully and effectively.

Opportunities

The company has the chance to collaborate with other global companies, especially where it does not have adequate presence. The present expansion strategy in Asia, Europe, and the East shows new areas of innovations, investments, improvements, and expansion. Moreover, the company has an ability to fast move in a new and rising market.

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Threats

The corporation business faces challenges from economic woes, high-interest rates, as well as government regulations. Secondly, the ever-increasing workforce could become unsustainable due to the high wages as well as reducing revenues.

Conclusion

In summary, the analysis of Deere & Company shows several aspects of the firm's performances. First, the evaluation and comparison of competitors' economic data indicate that to a certain level, the corporation has an average performance. However, in some segments, the performance recorded has become quite encouraging. The company's ratios show strong balance sheet and cash flows statements. It means that the company can financially sustain itself. Further, the SWOT analysis establishes the firm's potential in carrying out expansion activities, as well as the effective management of both its workers and customers. Besides, there exist numerous opportunities within the untapped markets across the globe. Deere & Company could reach these areas by establishing collaborations and partnerships with corporations in these areas. It can perform faster considering already speedily budget into newly found markets. However, there remain threats particularly from government regulations, high-interest rates as well as economic turmoil. Moreover, the firm ought to rethink its workforce management to further enhance it making it productive and controllable.

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