Did Buffett Make a Mistake by Buying Deere & Co (DE)?

1)      Deere & Co (NYSE:DE)

2)      AGCO (NYSE:AGCO)

3)      CNH (NYSE:CNH) Global

Buffet’s Deere seems to be the best stock to benefit from the potential surge in the demand for the farm-equipment. The following two tables will clarify the situation:

Among its peers, Deere has the largest proportion of total revenue coming from the North American region. Though CNH Global also has a sizeable exposure to North America, Deere gets 81% of its revenues by selling farm machinery (more than CNH’s 73%).

Also, Deere has heavily invested in Brazilian farms, which will help it to cash a strong growth in the country. (We do not know the exact proportion of Deere’s revenue from Brazil, because the company does not disclose it). AGCO, a pure-play on farm-machinery, is also expected to benefit from the strong expected crops in Brazil. However, it is not the best bet to benefit from the drought in the US because of its lower exposure to North America (as compared to Deere).

Valuations

Deere has outperformed the industry in Q1 2013 to date, with tractor sales up 61% and combine sales up 125%. This tells us that Warren Buffet made a right decision to invest in Deere.

The sell-side has revised Deere’s EPS estimate to $8.26 (from $8.00) for 2013. The agriculture segment is expected to grow by 4% (from 3%) this year. The price target of $100 represents a forward P/E multiple of 12 with a FY 2013 EPS estimate of $8.26.

Given a 10% upside from the current level, I recommend Deere as a buy.

The article Did Buffett Make a Mistake by Buying Deere? originally appeared on Fool.com.

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