Covering Analyst: Colin Bourdin

1. Covering Analyst: Colin Bourdin colinbourdin@comcast.net

2. Company Overview • Founded by John Deere himself in 1837 • In 1848 moved headquarters to Moline, Illinois where it resides today • Modern day company was incorporated under laws of Delaware in 1958 • John Deere leading manufacturer of agricultural machinery in the world with a 44.2% market share • Second largest manufacturer of Construction machinery in the world with a 7.1% market share

3. Deere’s Products • Agriculture & Turf equipment – 75% - Crop harvesting, turf & utility, hay & forage, crop care, and tractors • Construction & Forestry – 18% - Excavators, loaders, dump trucks, and skidders • Financial Services – 6% - Financing for sales & leases by dealers of A&T and C&F equipment

4. Deere’s Services • Global satellite positioning technologies • Intelligent Solutions Group - telematics - John Deere Farmsight – virtually linking equipment with farmers - John Deere Water – water management solutions and field connect soil sensing system

5. Business Growth Strategies • Sustainable SVS growth strategy – expanding more into six key geographic areas - 2012 opened new distribution centers in India, South Africa, Argentina, Sweden, Germany - 2013 building new factories in Brazil, China, and India - Expanding Financial Services into India, Chile, Thailand, Russia, and China • New Product Innovations - Intelligent Solutions group – keeping Deere on forefront of technology - New products in A&T and C&F – meeting Tier-4 standards

6. Industry Overview • Agricultural Machinery Industry – 1.5% growth to 2017 - Mature and innovation focused on improving existing products - Consolidation of farming – industry dominated by large conglomerates - Need for immense technological change – Tier 4 and more efficiency - Profitability has increased Construction Machinery Industry – 5.7% growth to 2017 - Equipment for residential, commercial, highway, other infrastructure - Sustained by strong international demand where infrastructure growing - Domestic demand expected to increase

7. Industry Market Share

8. Industry Macroeconomic Influences • Agriculture Machinery - Increase in population, urbanization, and industrialization - Climate – 2012 Drought - Commodity prices and Farmer’s Cash Receipts - Price of Steel and interest rates Construction Machinery - Increase in population, urbanization, industrialization - Real Estate Market - Interest rates and government spending on infrastructure

9. Svigals Portfolio • 11/29/2006 originally purchased 36 shares of DE for $96.27 per share • 12/4/2007 2:1 stock split • 12/4/2007 sold 16 shares at $87.38 per share • 11/10/2011 sold 20 shares at $74.24 per share

10. Revenue Model • Percentage of Revenue method for Product Segments • A&T – slowed year over year growth - High commodity prices and farm cash receipts expected to continue - Demand from emerging markets expected to increase - 2013 sales supported by early order program - 2013 sales negatively effected from delayed effects of drought - 2014 sales increase from new factories - Continued expansion and new products increase A%T as % of revenue

11. Revenue Model cont. • C&F : Slowed year over year growth - Improvement in U.S. real estate market increase 2013 sales and beyhond - Continued increase in urbanization and industrialization – higher demand - Rising prices for minerals/metals in 2013 and 2014 expected to drive mining activity - New C&F factories in Brazil and China commence production in 2014 • Financial Services - Improved credit conditions in 2013 - Increased demand in A&T and C&F lower percentage of total revenue

12. Working Capital Model • Projected as percentage of revenue

13. DCF Assumptions • COGS: Increase in 2013 due to rising price of steel and decreasing after due to decreasing price of steel • SG&A: Higher in 2013 due to 5000 new employees, new plants, lower in future years • R&D: Continued increase • Capital Expenditures: Rise in line with revenue • Depreciation: Increasing PP&E, increasing % of revenue

14. DCF • Projected as percentage of revenue

15. Beta

16. Growth Rates • Due to 10.5% increase in FCF in 2017 choose to do 5% intermediate growth rate • Choose 3% terminal growth rate as a conservative/ in line with GDP projection into perpetuity

17. DCF Valuation Summary

18. Comparable Analysis • Comparables screened for similar industry and business segments, size, growth rates, % revenue domestic vs. international, beta, debt/EV, EV/EBITDA, and P/E • Caterpillar (40%) – similar size, international presence, business segments, P/E, beta, debt/EV, EV/Revenue, EV/EBITDA • CNH Global (40%) – largest competitor to Deere in Agriculture Machinery and similar in business segments, EBITDA growth rate, debt/EV, P/E • Cummings (10%) – Different business segments but similar revenue growth rates, EV/EBITDA, EV/EBITDA – CapEx • AGCO (10%) – Smaller market cap and EV/Revenue and EV/EBITDA very small although most similar growth rates and similar P/E

19. Multiples • EV/Revenue not included because AGCO’s is not comparable and would bring down overall valuation

20. Final Valuation

21. Questions?

22. Recommendation • I recommend a hold to the Svigals Portfolio as Deere is undervalued • Largest manufacturer in Agricultural industry – most trusted name • Exponential increase in population, urbanization, industrialization make growth in industry inevitable • Strongly positioned in fastest growing countries on Earth • Housing market situated for a comeback • Historically strong earnings, dividend growth, and yield – 14.5% annual dividend growth over last 5 years; current 2.1% dividend yield • Not to mention Warren Buffet bought 4 million shares of DE last quarter