Deere’s a marathon runner
BY DAVID ROEDER firstname.lastname@example.org November 23, 2012 6:16PM
FILE- In this Feb. 13, 2011, file photo, a John Deere tractor is parked at the Stevens Implement Company, a John Deere dealership, in Petersburg, Ill. Deere & Co. said Wednesday, Nov. 21, 2012, that it earned $687.6 million for the quarter, or $1.75 per share. (AP Photo/Seth Perlman, File)
David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday
Updated: November 25, 2012 2:46AM
Tractor maker Deere (DE) is easing up on the throttle. With its latest quarterly earnings, management at the bellwether stock tossed out warnings about its short-term prospects.
But cut away the corporate caution and you’ve got a picture that shouldn’t scare off long-term investors. It certainly didn’t frighten Warren Buffett’s Berkshire Hathaway (BRKB), which added a stake in Deere a quarter ago after selling other blue-chip investments.
The maker of farm, forestry and construction equipment depends on farmers’ income. Moline-based Deere’s share prices roughly track changes in commodity prices. The company predicts that U.S. farm income next year will be slightly higher than it was in drought-ravaged 2012.
Some investors believe commodities are overdue for a sharp pullback. While that’s possible, Deere also could see other factors emerging, such as continued growth in overseas markets driven by higher living standards and increased urbanization.
Deere closed Friday at $83.97 after earlier in the week falling to its lowest point since mid-October. The stock trades at about 10 times projected 2013 earnings, making it cheap by its long-term averages.
For its quarter ending Oct. 31, Deere reported net income rose 2.7 percent to $687.6 million, or $1.75 a share. The result was well below analyst expectations, although revenue was up 14 percent to $9.79 billion.
Profit margins grew thinner, but William Blair & Co. analyst Lawrence De Maria noted that special charges such a higher tax rate affected the bottom line. Without the charges, earnings would have been close to the Wall Street call, he said.
He called it a “disappointing quarter,” but said Deere is still well positioned for any downturn. “Deere’s priorities are to maintain an S&P A credit rating, support growth initiatives, moderately raise the dividend and fund share repurchases,” De Maria wrote in a report to clients.
The stock, he said, should remain in a tight trading range until concerns are resolved about the domestic agricultural markets. De Maria has a neutral rating on the stock, with a price target of $85.
SECOND LOOK: Google’s (GOOG) $12.5 billion purchase of Motorola Mobility was widely panned last year, but may be about to bring in serious cash, reports Sejuti Banerjea of Zacks Investment Research. It comes down to the value of patents. Motorola Mobility has unsettled claims with Microsoft over revenue from Xbox game consoles and Surface tablets. It also has a payments dispute with Apple (AAPL).
GOOD SEGREGATION: While you were preparing for Thanksgiving, you may have missed the news that federal regulators fined the brokerage Cantor Fitzgerald & Co. $700,000 for the MF Global-like sin of failing to keep enough money in its customer segregated accounts. There was an “inadvertent” $3 million transfer of customer funds into Cantor’s house accounts, according to the Commodity Futures Trading Commission. The CFTC said Cantor’s senior management never knew of the problem until auditors at CME Group (CME) uncovered it. Just another pesky problem of a business trying to police itself.
BUY TIP: Chicago-based insurer Kemper (KMPR) should show strong earnings growth starting in 2013, said analysts at William Blair & Co. They said the company’s third-quarter earnings report show it taking several aggressive actions, including raising rates on some auto and homeowners’ policies and exiting loss-prone businesses. The Blair team sees clear improvement by late 2013.
GROUPON GROUPTHINK: Groupon (GRPN) had a great holiday-shortened week. Its shares climbed about a third to Friday’s close of $3.96 on disclosure of a hedge fund’s stake in the troubled daily-deals merchant. The move scored profits for holders of Groupon call options that expired Friday.
Schaeffer’s Research reports that other options traders are skeptical of Groupon’s staying power. It said some are adopting a long-term short call position as part of a buy-write strategy — buying the underlying shares and selling a corresponding number of call contracts. It’s a way to get income out of the stock when you’re not sure of its direction.
NEWS HEADLINE: From MarketWatch.com, “Hot holiday gift: Life insurance!” The author must be the life of any Christmas party.
CLOSING QUOTE: “Clearly, the retail industry is recovering from the financial crisis. It would be nice if the workers who have helped the retail chains keep prices low recovered as well. Retail productivity has improved by an average of 0.8 percent each year since 2008, yet median compensation has declined over the same period. The benefits of the recovery are not reaching those at the bottom of the income chain.” — Bloomberg News