Our Industrials Team – led by Jay Van Sciver – is hosting an institutional call on our Deere (DE) short thesis.
With FY17 guidance likely to be updated in the May earnings report amid deteriorating credit, rising input costs, and ongoing unit declines, we believe investors should position accordingly. DE shares have risen sharply providing an unusually favorable opportunity.
The call will take place on Wednesday March 15th at 11am ET. Email email@example.com for more information.
KEY DISCUSSION POINTS
Management Comments Don’t Match Data, As We See It: Ongoing deterioration in credit metrics and year-on-year increases in the lease portfolio portend pressure on DE Financial. A proper historical context implies that provisions will have to move significantly higher.
Materials Costs To Move Higher: While key suppliers may have limited the hit to DE from higher steel prices, we expect equipment margins to be compressed by rising input costs in FY17. Current estimates continue to incorporate aggressive margin assumptions.
Valued Incorrectly: We see investors applying a trough multiple to financial services earnings, which we believe is best valued on a multiple of book. We also see a trough multiple as inappropriate, as prior equipment cycles have lasted as long as many investors’ careers.
Not Trough: We do not believe DE results have ‘troughed’, with unit sales declines for the Ag Equipment industry ongoing. Viewed on a longer-term basis, the risk to units becomes clear, as referenced previous ‘troughs’ were comparatively minor relative to the current downcycle.
Ping firstname.lastname@example.org for more information. Please note if you are not a current subscriber to our Industrials research there will be a fee associated with this call.
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