Intrinsic value of Deere - DE

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$110.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$110.25

 
Intrinsic value

$45.09

 
Up/down potential

-59%

 
Rating

str. sell

 
Value-price divergence* premium content

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*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 35.0

 

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
  4,485
  4,583
  4,703
  4,843
  5,004
  5,185
  5,386
  5,607
  5,850
  6,113
  6,399
  6,706
  7,037
  7,391
  7,769
  8,174
  8,604
  9,063
  9,550
  10,067
  10,616
  11,197
  11,812
  12,464
  13,153
  13,881
  14,651
  15,464
  16,322
  17,228
Interest expense (income), $m
  726
  1,097
  1,128
  1,166
  1,211
  1,260
  1,315
  1,376
  1,441
  1,512
  1,589
  1,671
  1,759
  1,853
  1,953
  2,059
  2,171
  2,291
  2,417
  2,551
  2,692
  2,841
  2,998
  3,164
  3,339
  3,523
  3,717
  3,922
  4,137
  4,363
  4,601
Earnings before tax, $m
  2,224
  1,834
  1,867
  1,910
  1,962
  2,025
  2,098
  2,181
  2,275
  2,379
  2,494
  2,702
  2,839
  2,988
  3,150
  3,323
  3,510
  3,711
  3,926
  4,156
  4,401
  4,662
  4,941
  5,237
  5,552
  5,887
  6,242
  6,619
  7,019
  7,442
  7,891
Tax expense, $m
  700
  495
  504
  516
  530
  547
  566
  589
  614
  642
  673
  729
  767
  807
  850
  897
  948
  1,002
  1,060
  1,122
  1,188
  1,259
  1,334
  1,414
  1,499
  1,590
  1,685
  1,787
  1,895
  2,009
  2,131
Net income, $m
  1,524
  1,339
  1,363
  1,394
  1,432
  1,478
  1,532
  1,592
  1,661
  1,737
  1,821
  1,972
  2,073
  2,181
  2,299
  2,426
  2,563
  2,709
  2,866
  3,034
  3,213
  3,404
  3,607
  3,823
  4,053
  4,298
  4,557
  4,832
  5,124
  5,433
  5,760

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
  54,682
  55,940
  57,377
  58,991
  60,780
  62,742
  64,879
  67,192
  69,684
  72,358
  75,219
  78,272
  81,522
  84,977
  88,642
  92,527
  96,639
  100,987
  105,582
  110,433
  115,552
  120,950
  126,640
  132,636
  138,950
  145,598
  152,596
  159,960
  167,706
  175,855
Adjusted assets (=assets-cash), $m
  53,645
  54,682
  55,940
  57,377
  58,991
  60,780
  62,742
  64,879
  67,192
  69,684
  72,358
  75,219
  78,272
  81,522
  84,977
  88,642
  92,527
  96,639
  100,987
  105,582
  110,433
  115,552
  120,950
  126,640
  132,636
  138,950
  145,598
  152,596
  159,960
  167,706
  175,855
Revenue / Adjusted assets
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
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
  32,224
  33,328
  34,590
  36,007
  37,578
  39,300
  41,177
  43,207
  45,395
  47,743
  50,255
  52,936
  55,789
  58,822
  62,041
  65,451
  69,062
  72,880
  76,914
  81,173
  85,668
  90,407
  95,403
  100,667
  106,211
  112,048
  118,192
  124,657
  131,459
  138,613
Total liabilities, $m
  51,461
  48,011
  49,115
  50,377
  51,794
  53,365
  55,087
  56,964
  58,994
  61,182
  63,530
  66,042
  68,723
  71,576
  74,609
  77,828
  81,238
  84,849
  88,667
  92,701
  96,960
  101,455
  106,194
  111,190
  116,454
  121,998
  127,835
  133,979
  140,444
  147,246
  154,400
Total equity, $m
  6,520
  6,671
  6,825
  7,000
  7,197
  7,415
  7,655
  7,915
  8,197
  8,501
  8,828
  9,177
  9,549
  9,946
  10,367
  10,814
  11,288
  11,790
  12,320
  12,881
  13,473
  14,097
  14,756
  15,450
  16,182
  16,952
  17,763
  18,617
  19,515
  20,460
  21,454
Total liabilities and equity, $m
  57,981
  54,682
  55,940
  57,377
  58,991
  60,780
  62,742
  64,879
  67,191
  69,683
  72,358
  75,219
  78,272
  81,522
  84,976
  88,642
  92,526
  96,639
  100,987
  105,582
  110,433
  115,552
  120,950
  126,640
  132,636
  138,950
  145,598
  152,596
  159,959
  167,706
  175,854
Debt-to-equity ratio
  5.471
  4.830
  4.880
  4.940
  5.000
  5.070
  5.130
  5.200
  5.270
  5.340
  5.410
  5.480
  5.540
  5.610
  5.670
  5.740
  5.800
  5.860
  5.920
  5.970
  6.020
  6.080
  6.130
  6.170
  6.220
  6.270
  6.310
  6.350
  6.390
  6.430
  6.460
Adjusted equity ratio
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,524
  1,339
  1,363
  1,394
  1,432
  1,478
  1,532
  1,592
  1,661
  1,737
  1,821
  1,972
  2,073
  2,181
  2,299
  2,426
  2,563
  2,709
  2,866
  3,034
  3,213
  3,404
  3,607
  3,823
  4,053
  4,298
  4,557
  4,832
  5,124
  5,433
  5,760
Depreciation, amort., depletion, $m
  1,560
  1,554
  1,588
  1,627
  1,670
  1,719
  1,771
  1,829
  1,891
  1,958
  2,030
  2,026
  2,108
  2,196
  2,289
  2,387
  2,492
  2,603
  2,720
  2,844
  2,974
  3,112
  3,257
  3,411
  3,572
  3,742
  3,921
  4,110
  4,308
  4,517
  4,736
Funds from operations, $m
  3,916
  2,893
  2,951
  3,021
  3,103
  3,197
  3,303
  3,421
  3,552
  3,695
  3,851
  3,998
  4,181
  4,377
  4,588
  4,813
  5,054
  5,312
  5,586
  5,877
  6,187
  6,516
  6,864
  7,234
  7,625
  8,040
  8,478
  8,942
  9,432
  9,950
  10,496
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
  3,223
  2,774
  2,818
  2,875
  2,944
  3,026
  3,120
  3,225
  3,343
  3,474
  3,594
  3,750
  3,918
  4,100
  4,296
  4,506
  4,731
  4,972
  5,229
  5,502
  5,793
  6,102
  6,431
  6,779
  7,149
  7,540
  7,954
  8,392
  8,856
  9,346
Maintenance CAPEX, $m
  0
  -1,445
  -1,473
  -1,507
  -1,545
  -1,589
  -1,637
  -1,690
  -1,747
  -1,810
  -1,877
  -1,949
  -2,026
  -2,108
  -2,196
  -2,289
  -2,387
  -2,492
  -2,603
  -2,720
  -2,844
  -2,974
  -3,112
  -3,257
  -3,411
  -3,572
  -3,742
  -3,921
  -4,110
  -4,308
  -4,517
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
  -1,647
  -1,724
  -1,794
  -1,867
  -1,945
  -2,028
  -2,116
  -2,208
  -2,307
  -2,410
  -2,519
  -2,634
  -2,756
  -2,884
  -3,020
  -3,161
  -3,312
  -3,470
  -3,636
  -3,811
  -3,994
  -4,188
  -4,391
  -4,606
  -4,830
  -5,067
  -5,316
  -5,578
  -5,852
  -6,141
Free cash flow, $m
  2,587
  1,575
  1,051
  1,025
  1,008
  999
  998
  1,004
  1,017
  1,037
  1,064
  1,075
  1,115
  1,162
  1,216
  1,277
  1,345
  1,420
  1,503
  1,593
  1,692
  1,799
  1,914
  2,039
  2,174
  2,318
  2,473
  2,638
  2,815
  3,004
  3,206
Issuance/(repayment) of debt, $m
  -1,411
  886
  1,104
  1,262
  1,417
  1,570
  1,723
  1,876
  2,031
  2,188
  2,348
  2,512
  2,680
  2,854
  3,033
  3,218
  3,411
  3,610
  3,818
  4,034
  4,259
  4,494
  4,740
  4,996
  5,264
  5,544
  5,837
  6,144
  6,465
  6,802
  7,154
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
  886
  1,104
  1,262
  1,417
  1,570
  1,723
  1,876
  2,031
  2,188
  2,348
  2,512
  2,680
  2,854
  3,033
  3,218
  3,411
  3,610
  3,818
  4,034
  4,259
  4,494
  4,740
  4,996
  5,264
  5,544
  5,837
  6,144
  6,465
  6,802
  7,154
Total cash flow (excl. dividends), $m
  935
  2,461
  2,155
  2,287
  2,425
  2,569
  2,721
  2,880
  3,048
  3,225
  3,412
  3,587
  3,796
  4,016
  4,249
  4,495
  4,755
  5,030
  5,321
  5,627
  5,951
  6,293
  6,654
  7,035
  7,438
  7,862
  8,310
  8,782
  9,280
  9,806
  10,360
Retained Cash Flow (-), $m
  223
  -151
  -153
  -175
  -197
  -218
  -239
  -261
  -282
  -304
  -326
  -349
  -372
  -397
  -421
  -447
  -474
  -502
  -531
  -561
  -592
  -625
  -659
  -694
  -731
  -770
  -811
  -854
  -898
  -945
  -994
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
 
  2,310
  2,001
  2,112
  2,228
  2,351
  2,481
  2,619
  2,766
  2,921
  3,086
  3,238
  3,423
  3,620
  3,828
  4,048
  4,281
  4,529
  4,790
  5,067
  5,359
  5,669
  5,996
  6,341
  6,706
  7,092
  7,499
  7,929
  8,382
  8,861
  9,366
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
 
  2,077
  1,602
  1,489
  1,368
  1,242
  1,113
  984
  858
  736
  622
  513
  418
  334
  262
  201
  150
  110
  78
  54
  37
  24
  15
  9
  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 22.8
Price to Sales 1.3
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 9.2
Price to Free Cash Flow 42.9
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 7.4 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 317.38 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 $35.0 billion.


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COMPANY NEWS

▶ Lots of calls on the street: DIS, DE, YELP, and more   [Apr-11-17 01:33PM  CNBC Videos]
▶ Deere: Back To The Races In 2018?   [10:01AM  Barrons.com]
▶ What Analysts Recommend for Deere   [Apr-06-17 07:36AM  Market Realist]
▶ Deere to Pay 2Q17 Dividend on May 1   [Apr-05-17 10:37AM  Market Realist]
▶ How Deere Stock Has Performed in 2017 So Far   [08:40AM  Market Realist]
▶ Cramer: We Have Nothing to Distinguish the Stocks Right Now   [Apr-03-17 07:01PM  TheStreet.com]
▶ America's serious bridge problem   [Mar-31-17 04:51PM  CNBC Videos]
▶ Loving infrastructure stocks: Pro   [03:35PM  CNBC Videos]
▶ How to play Trump's infrastructure plans   [06:33AM  CNBC Videos]
▶ Deere Stock Trades Ex-Dividend Wednesday   [11:34AM  at Investopedia]
▶ Watch for Breakouts in These Stocks, Up or Down   [Mar-15-17 01:00PM  at Investopedia]
▶ Here's Why Deere & Company's Management is Doing a Good Job   [Mar-06-17 09:11AM  at Motley Fool]
▶ 3 Stocks the Market Is Wrong About   [Feb-23-17 09:23PM  at Motley Fool]
▶ Deere & Company Announces Quarterly Dividend   [Feb-22-17 12:52PM  PR Newswire]
▶ [$$] Deere Gives Upbeat Outlook as Earnings Fall   [Feb-17-17 11:33PM  at The Wall Street Journal]
▶ [$$] Deere Gives Upbeat Outlook as Earnings Fall   [02:06PM  at The Wall Street Journal]
▶ Top Stocks Warren Buffett Is Selling Now   [11:02AM  at Motley Fool]
▶ Dows record run set to hit a wall   [08:18AM  at MarketWatch]
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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