Intrinsic value of Deere - DE

Previous Close

$126.63

  Intrinsic Value

$44.06

stock screener

  Rating & Target

str. sell

-65%

  Value-price divergence*

-69%

Previous close

$126.63

 
Intrinsic value

$44.06

 
Up/down potential

-65%

 
Rating

str. sell

 
Value-price divergence*

-69%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of DE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 40.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.69
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  26,644
  27,177
  27,802
  28,516
  29,319
  30,207
  31,183
  32,245
  33,394
  34,633
  35,962
  37,384
  38,901
  40,516
  42,233
  44,055
  45,986
  48,029
  50,191
  52,474
  54,885
  57,429
  60,112
  62,940
  65,920
  69,058
  72,362
  75,840
  79,500
  83,350
  87,400
Variable operating expenses, $m
 
  21,849
  22,349
  22,921
  23,564
  24,276
  25,057
  25,908
  26,828
  27,820
  28,885
  29,942
  31,157
  32,451
  33,826
  35,285
  36,832
  38,469
  40,200
  42,028
  43,960
  45,997
  48,146
  50,411
  52,798
  55,311
  57,958
  60,743
  63,674
  66,758
  70,002
Fixed operating expenses, $m
 
  2,397
  2,457
  2,519
  2,582
  2,646
  2,713
  2,780
  2,850
  2,921
  2,994
  3,069
  3,146
  3,224
  3,305
  3,388
  3,472
  3,559
  3,648
  3,739
  3,833
  3,929
  4,027
  4,127
  4,231
  4,336
  4,445
  4,556
  4,670
  4,787
  4,906
Total operating expenses, $m
  23,715
  24,246
  24,806
  25,440
  26,146
  26,922
  27,770
  28,688
  29,678
  30,741
  31,879
  33,011
  34,303
  35,675
  37,131
  38,673
  40,304
  42,028
  43,848
  45,767
  47,793
  49,926
  52,173
  54,538
  57,029
  59,647
  62,403
  65,299
  68,344
  71,545
  74,908
Operating income, $m
  2,929
  2,931
  2,995
  3,076
  3,173
  3,285
  3,413
  3,557
  3,716
  3,891
  4,083
  4,373
  4,598
  4,841
  5,102
  5,382
  5,682
  6,002
  6,343
  6,706
  7,093
  7,503
  7,939
  8,402
  8,892
  9,411
  9,960
  10,541
  11,156
  11,805
  12,492
EBITDA, $m
  4,489
  4,102
  4,192
  4,301
  4,430
  4,578
  4,745
  4,931
  5,137
  5,362
  5,607
  5,872
  6,158
  6,466
  6,796
  7,149
  7,526
  7,928
  8,356
  8,811
  9,294
  9,806
  10,350
  10,926
  11,535
  12,180
  12,862
  13,582
  14,344
  15,148
  15,997
Interest expense (income), $m
  726
  1,249
  1,284
  1,326
  1,374
  1,428
  1,488
  1,554
  1,626
  1,704
  1,787
  1,877
  1,973
  2,076
  2,185
  2,301
  2,424
  2,554
  2,693
  2,839
  2,993
  3,156
  3,328
  3,509
  3,700
  3,901
  4,113
  4,337
  4,572
  4,819
  5,079
Earnings before tax, $m
  2,224
  1,682
  1,712
  1,750
  1,799
  1,857
  1,925
  2,002
  2,090
  2,188
  2,296
  2,496
  2,625
  2,765
  2,917
  3,081
  3,258
  3,447
  3,650
  3,868
  4,100
  4,348
  4,612
  4,893
  5,192
  5,509
  5,846
  6,204
  6,584
  6,986
  7,413
Tax expense, $m
  700
  454
  462
  473
  486
  501
  520
  541
  564
  591
  620
  674
  709
  747
  788
  832
  880
  931
  986
  1,044
  1,107
  1,174
  1,245
  1,321
  1,402
  1,487
  1,579
  1,675
  1,778
  1,886
  2,001
Net income, $m
  1,524
  1,228
  1,250
  1,278
  1,313
  1,355
  1,405
  1,462
  1,526
  1,597
  1,676
  1,822
  1,916
  2,019
  2,130
  2,249
  2,378
  2,517
  2,665
  2,823
  2,993
  3,174
  3,367
  3,572
  3,790
  4,022
  4,268
  4,529
  4,806
  5,100
  5,411

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,336
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  57,981
  59,080
  60,439
  61,992
  63,736
  65,668
  67,789
  70,097
  72,596
  75,289
  78,178
  81,269
  84,567
  88,079
  91,812
  95,772
  99,969
  104,412
  109,110
  114,074
  119,316
  124,846
  130,679
  136,827
  143,304
  150,126
  157,309
  164,870
  172,826
  181,196
  190,000
Adjusted assets (=assets-cash), $m
  53,645
  59,080
  60,439
  61,992
  63,736
  65,668
  67,789
  70,097
  72,596
  75,289
  78,178
  81,269
  84,567
  88,079
  91,812
  95,772
  99,969
  104,412
  109,110
  114,074
  119,316
  124,846
  130,679
  136,827
  143,304
  150,126
  157,309
  164,870
  172,826
  181,196
  190,000
Revenue / Adjusted assets
  0.497
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
Average production assets, $m
  10,696
  10,898
  11,149
  11,435
  11,757
  12,113
  12,504
  12,930
  13,391
  13,888
  14,421
  14,991
  15,599
  16,247
  16,936
  17,666
  18,440
  19,260
  20,126
  21,042
  22,009
  23,029
  24,105
  25,239
  26,434
  27,692
  29,017
  30,412
  31,879
  33,423
  35,047
Working capital, $m
  0
  7,718
  7,896
  8,099
  8,326
  8,579
  8,856
  9,158
  9,484
  9,836
  10,213
  10,617
  11,048
  11,507
  11,994
  12,512
  13,060
  13,640
  14,254
  14,903
  15,587
  16,310
  17,072
  17,875
  18,721
  19,613
  20,551
  21,539
  22,578
  23,671
  24,822
Total debt, $m
  35,674
  36,676
  37,883
  39,262
  40,811
  42,527
  44,409
  46,459
  48,678
  51,069
  53,635
  56,380
  59,309
  62,427
  65,742
  69,259
  72,986
  76,931
  81,103
  85,511
  90,165
  95,076
  100,256
  105,715
  111,467
  117,525
  123,904
  130,618
  137,682
  145,115
  152,933
Total liabilities, $m
  51,461
  52,463
  53,670
  55,049
  56,598
  58,314
  60,196
  62,246
  64,465
  66,856
  69,422
  72,167
  75,096
  78,214
  81,529
  85,046
  88,773
  92,718
  96,890
  101,298
  105,952
  110,863
  116,043
  121,502
  127,254
  133,312
  139,691
  146,405
  153,469
  160,902
  168,720
Total equity, $m
  6,520
  6,617
  6,769
  6,943
  7,138
  7,355
  7,592
  7,851
  8,131
  8,432
  8,756
  9,102
  9,472
  9,865
  10,283
  10,726
  11,197
  11,694
  12,220
  12,776
  13,363
  13,983
  14,636
  15,325
  16,050
  16,814
  17,619
  18,465
  19,356
  20,294
  21,280
Total liabilities and equity, $m
  57,981
  59,080
  60,439
  61,992
  63,736
  65,669
  67,788
  70,097
  72,596
  75,288
  78,178
  81,269
  84,568
  88,079
  91,812
  95,772
  99,970
  104,412
  109,110
  114,074
  119,315
  124,846
  130,679
  136,827
  143,304
  150,126
  157,310
  164,870
  172,825
  181,196
  190,000
Debt-to-equity ratio
  5.471
  5.540
  5.600
  5.650
  5.720
  5.780
  5.850
  5.920
  5.990
  6.060
  6.130
  6.190
  6.260
  6.330
  6.390
  6.460
  6.520
  6.580
  6.640
  6.690
  6.750
  6.800
  6.850
  6.900
  6.940
  6.990
  7.030
  7.070
  7.110
  7.150
  7.190
Adjusted equity ratio
  0.122
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,524
  1,228
  1,250
  1,278
  1,313
  1,355
  1,405
  1,462
  1,526
  1,597
  1,676
  1,822
  1,916
  2,019
  2,130
  2,249
  2,378
  2,517
  2,665
  2,823
  2,993
  3,174
  3,367
  3,572
  3,790
  4,022
  4,268
  4,529
  4,806
  5,100
  5,411
Depreciation, amort., depletion, $m
  1,560
  1,171
  1,196
  1,225
  1,257
  1,293
  1,332
  1,375
  1,421
  1,470
  1,524
  1,499
  1,560
  1,625
  1,694
  1,767
  1,844
  1,926
  2,013
  2,104
  2,201
  2,303
  2,410
  2,524
  2,643
  2,769
  2,902
  3,041
  3,188
  3,342
  3,505
Funds from operations, $m
  3,916
  2,399
  2,446
  2,503
  2,570
  2,648
  2,737
  2,836
  2,946
  3,067
  3,199
  3,321
  3,476
  3,643
  3,823
  4,016
  4,222
  4,443
  4,677
  4,928
  5,194
  5,477
  5,777
  6,096
  6,433
  6,791
  7,170
  7,570
  7,994
  8,442
  8,916
Change in working capital, $m
  152
  151
  178
  203
  228
  252
  277
  302
  326
  352
  377
  404
  431
  459
  488
  517
  548
  580
  614
  649
  685
  723
  762
  803
  846
  891
  938
  988
  1,039
  1,093
  1,150
Cash from operations, $m
  3,764
  2,248
  2,268
  2,300
  2,342
  2,396
  2,460
  2,535
  2,620
  2,716
  2,822
  2,917
  3,045
  3,184
  3,336
  3,498
  3,674
  3,862
  4,064
  4,279
  4,509
  4,754
  5,015
  5,292
  5,587
  5,900
  6,231
  6,583
  6,955
  7,349
  7,766
Maintenance CAPEX, $m
  0
  -1,070
  -1,090
  -1,115
  -1,144
  -1,176
  -1,211
  -1,250
  -1,293
  -1,339
  -1,389
  -1,442
  -1,499
  -1,560
  -1,625
  -1,694
  -1,767
  -1,844
  -1,926
  -2,013
  -2,104
  -2,201
  -2,303
  -2,410
  -2,524
  -2,643
  -2,769
  -2,902
  -3,041
  -3,188
  -3,342
New CAPEX, $m
  -2,955
  -202
  -251
  -287
  -322
  -356
  -391
  -426
  -461
  -497
  -533
  -570
  -608
  -648
  -688
  -731
  -774
  -820
  -867
  -916
  -967
  -1,020
  -1,076
  -1,134
  -1,195
  -1,258
  -1,325
  -1,395
  -1,468
  -1,544
  -1,624
Cash from investing activities, $m
  -1,177
  -1,272
  -1,341
  -1,402
  -1,466
  -1,532
  -1,602
  -1,676
  -1,754
  -1,836
  -1,922
  -2,012
  -2,107
  -2,208
  -2,313
  -2,425
  -2,541
  -2,664
  -2,793
  -2,929
  -3,071
  -3,221
  -3,379
  -3,544
  -3,719
  -3,901
  -4,094
  -4,297
  -4,509
  -4,732
  -4,966
Free cash flow, $m
  2,587
  977
  928
  898
  877
  864
  858
  859
  866
  880
  900
  905
  938
  977
  1,022
  1,074
  1,133
  1,199
  1,271
  1,351
  1,438
  1,533
  1,636
  1,748
  1,868
  1,998
  2,137
  2,286
  2,446
  2,617
  2,800
Issuance/(repayment) of debt, $m
  -1,411
  1,002
  1,207
  1,379
  1,549
  1,716
  1,883
  2,050
  2,219
  2,391
  2,566
  2,745
  2,929
  3,119
  3,314
  3,517
  3,727
  3,945
  4,172
  4,408
  4,654
  4,911
  5,179
  5,459
  5,752
  6,058
  6,378
  6,714
  7,065
  7,433
  7,818
Issuance/(repurchase) of shares, $m
  -169
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,640
  1,002
  1,207
  1,379
  1,549
  1,716
  1,883
  2,050
  2,219
  2,391
  2,566
  2,745
  2,929
  3,119
  3,314
  3,517
  3,727
  3,945
  4,172
  4,408
  4,654
  4,911
  5,179
  5,459
  5,752
  6,058
  6,378
  6,714
  7,065
  7,433
  7,818
Total cash flow (excl. dividends), $m
  935
  1,979
  2,135
  2,278
  2,426
  2,580
  2,740
  2,909
  3,085
  3,271
  3,466
  3,650
  3,867
  4,095
  4,337
  4,591
  4,860
  5,144
  5,443
  5,759
  6,092
  6,444
  6,816
  7,207
  7,620
  8,056
  8,516
  9,000
  9,511
  10,050
  10,617
Retained Cash Flow (-), $m
  223
  -97
  -152
  -174
  -195
  -216
  -237
  -259
  -280
  -302
  -324
  -346
  -369
  -393
  -418
  -444
  -470
  -498
  -526
  -556
  -587
  -619
  -653
  -689
  -725
  -764
  -804
  -847
  -891
  -937
  -986
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,882
  1,982
  2,104
  2,231
  2,363
  2,503
  2,650
  2,805
  2,969
  3,142
  3,303
  3,497
  3,702
  3,919
  4,148
  4,390
  4,646
  4,917
  5,203
  5,505
  5,825
  6,162
  6,519
  6,895
  7,292
  7,711
  8,153
  8,620
  9,112
  9,631
Discount rate, %
 
  11.20
  11.76
  12.35
  12.97
  13.61
  14.29
  15.01
  15.76
  16.55
  17.37
  18.24
  19.16
  20.11
  21.12
  22.18
  23.28
  24.45
  25.67
  26.95
  28.30
  29.72
  31.20
  32.76
  34.40
  36.12
  37.93
  39.82
  41.81
  43.91
  46.10
PV of cash for distribution, $m
 
  1,692
  1,587
  1,484
  1,370
  1,248
  1,123
  996
  870
  748
  633
  523
  427
  342
  268
  206
  154
  113
  80
  56
  38
  25
  16
  10
  6
  3
  2
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Deere & Company, together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The company’s Agriculture and Turf segment provides agriculture and turf equipment, and related service parts, including large, medium, and utility tractors; loaders; combines, cotton pickers and strippers, and sugarcane harvesters; related front-end harvesting equipment; sugarcane loaders and pull-behind scrapers; and tillage, seeding, and application equipment, including sprayers, nutrient management, and soil preparation machinery. This segment also provides hay and forage equipment comprising self-propelled forage harvesters and attachments, balers, and mowers; turf and utility equipment, including riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment, as well as associated implements; integrated agricultural management systems technology and solutions; and other outdoor power products. Its Construction and Forestry segment provides backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders; skid-steer loaders; and log skidders, feller bunchers, log loaders, log forwarders, log harvesters, and related attachments that are used in construction, earthmoving, material handling, and timber harvesting applications. The company’s Financial Services segment finances sales and leases of new and used agriculture and turf equipment, and construction and forestry equipment. This segment also provides wholesale financing to dealers of the foregoing equipment; finances retail revolving charge accounts; and offers extended equipment warranties. The company markets its products primarily through independent retail dealer networks and retail outlets. Deere & Company was founded in 1837 and is headquartered in Moline, Illinois.

FINANCIAL RATIOS  of  Deere (DE)

Valuation Ratios
P/E Ratio 26.2
Price to Sales 1.5
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 10.6
Price to Free Cash Flow 49.3
Growth Rates
Sales Growth Rate -7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.6%
Cap. Spend. - 3 Yr. Gr. Rate 4.5%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 364.4%
Total Debt to Equity 547.1%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 3.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5%
Return On Equity 23%
Return On Equity - 3 Yr. Avg. 26.7%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 26.6%
Gross Margin - 3 Yr. Avg. 27.1%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 17.5%
Operating Margin 11%
Oper. Margin - 3 Yr. Avg. 12.6%
Pre-Tax Margin 8.3%
Pre-Tax Margin - 3 Yr. Avg. 10.4%
Net Profit Margin 5.7%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 31.5%
Eff/ Tax Rate - 3 Yr. Avg. 31.9%
Payout Ratio 49.9%

DE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DE stock intrinsic value calculation we used $26644 million for the last fiscal year's total revenue generated by Deere. The default revenue input number comes from 2016 income statement of Deere. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our DE stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.2%, whose default value for DE is calculated based on our internal credit rating of Deere, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Deere.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of DE stock the variable cost ratio is equal to 80.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2339 million in the base year in the intrinsic value calculation for DE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Deere.

Corporate tax rate of 27% is the nominal tax rate for Deere. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the DE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for DE are equal to 40.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Deere operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for DE is equal to 28.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6520 million for Deere - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 318.198 million for Deere is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Deere at the current share price and the inputted number of shares is $40.3 billion.

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COMPANY NEWS

▶ Why Deere Can Gain 25%. Yes, 25%.   [Aug-07-17 12:51PM  Barrons.com]
▶ [$$] Agco to Acquire Precision Planting From Monsanto   [Jul-26-17 12:18PM  The Wall Street Journal]
▶ [$$] America's Farmers Turn to Bank of John Deere   [02:08PM  The Wall Street Journal]
▶ Top Ranked Momentum Stocks to Buy for July 17th   [Jul-17-17 09:30AM  Zacks]
▶ EU mergers and takeovers (July 14)   [Jul-14-17 11:54AM  Reuters]
▶ Five Scorching Hot Stocks Screaming Higher   [Jul-11-17 05:08PM  Zacks]
▶ [$$] EvercoreHiresDeutscheBank's PaulStefanick   [Jun-30-17 10:06AM  The Wall Street Journal]
▶ Is it Time to Buy Agriculture Stocks?   [Jun-27-17 06:27PM  Zacks]
▶ Deere Purchases Italian Sprayer Manufacturer   [Jun-26-17 10:19AM  PR Newswire]
▶ Deere Stock Has Been Strong in 2017   [10:01AM  Market Realist]
▶ 5 Large Cap Stocks to Buy Now   [Jun-14-17 03:47PM  Zacks]
▶ Farming Stock And Deere Rival With 140% Growth Plows Ahead   [04:32PM  Investor's Business Daily]
▶ Four members of iQ100 hitting all-time highs   [Jun-09-17 03:49PM  CNBC Videos]
▶ Top Stock Picks for the Week of June 5th   [Jun-06-17 03:50PM  Zacks]
▶ Bull of the Day: Deere & Co (DE)   [07:01AM  Zacks]
▶ [$$] Deere Acquisition Patches a Hole   [Jun-04-17 11:05PM  Barrons.com]
▶ 3 Stocks Set for Higher Highs   [Jun-02-17 04:35PM  Zacks]
▶ Deere: Good Deal, Good Upgrade?   [12:54PM  Barrons.com]
▶ Dollar General and Deere rise; Boeing and HP Enterprise   [Jun-01-17 05:28PM  Associated Press]
▶ Farm Giant Deere Hits The Road With Big German Takeover   [04:34PM  Investor's Business Daily]
▶ Nine members of iQ100 hit all time highs   [03:14PM  CNBC Videos]
▶ [$$] Deere to Buy Road Construction Equipment Maker   [02:22PM  The Wall Street Journal]
▶ Deere: You Like It, You Really Like It   [11:13AM  Barrons.com]
Stock chart of DE Financial statements of DE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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