Deere & Co.

Dear Diary,

It has been suggested that Deere & Co. (DE) might be worthy of my study.

In examination of Deere & Co. (DE), I find in the January 25, 2008 "Value Line" a Net Profit Margin under 10.0%, indicating no serious competitive advantage in products. This means that volume of sales and low cost of production are its strengths, much in the way Wal-Mart operates as the low cost operation to maintain market dominance.

Because DE is so large an operation, with overseas sales at 36% of revenues, the company appears protected from the low U. S. Dollar problems of late and can sustain a current ratio of less than 2, as it seems to know its fixed costs over its many decades of operation.

With a Net Profit of $2.1 billion projected in 2008 against Long term Debt of $1.9 billion, this ratio is in good order.

Both Return on Shareholder Equity and Return on Total Capital remain far above the 12% minimums, now in the mid 20% range.

Expected Earnings Per Share for 2008 are $4.75 and at the tail of an upward trend in earnings since 2001. With a 4.6% 30 Year Treasury Bond Yield, the Relative Value per share is $103.26, making the issue only slightly undervalued at the current $85 sale range. And with a P/E ratio at the high end of its average for the past several years, DE is a relative momentum play and not suitable for conservative investors seeking an entrance point into the issue. However, DE does appear to be in the middle of a long term sales growth period, with growing commodity prices in wheat, corn and the like driving earnings, due to the emerging bio fuel industry around the world.

I have no information on the ratio of Total Assets to Shareholder Equity, as yet.


Gene