Deere Valuation

|

|

|

|

|

|

Developing a strategic analysis of Deere & Company (DE) provides the necessary insight into the organization to recommend methods to maximize shareholder value. Detailed analysis of financial statements, industry position, strategy and competition exhibits areas for performance improvement provide the base for our analysis. While a valuation using forecasted financials will show our improvement plans.

Strategic Overview

DE, founded in 1837, is a leader of manufacturing and selling agricultural, forestry and construction machinery. They achieved record net income of $2.80 billion at the end of 2011, compared to 1.86 billion from 2010. Sales increased by 25% worldwide. The company's excellent performance is attributable to successful planning through 2008-2010 recession period, smart acquisitions and investments, and strict adherence to its operating plan. The firm's major competitors are Caterpillar, Inc. (CAT) and Cummins globally, while Komatsu, Kubota, and CNH emerged as major competitors internationally. DE expects increased demand for its products in 2012 as the global economy recovers from recession. Thus, the firm is projecting a 15% increase in sales and anticipating net income of $3.2 billion.

By using Porter’s Five Forces analysis, we determine DE’s strategic position (Exhibit 1). These are:

1. Bargaining Power of Suppliers: Suppliers have a substantial amount of bargaining power over DE because the number of suppliers in steel and rubber industry is limited and the number of those who can provide supplies according to the firm's specifications is even smaller. Based on these factors, it is in DE's best interest to keep a mutually symbiotic relationship with its current suppliers.

2. Bargaining Power of Customers: The buyers of DE products are farmers and construction firms. Demand for these products is limited so the buyers cannot influence the prices. Since agricultural machinery does not differ...