The Rising Influence of Rising Affluence

[DewDiligence]

DE’s FY2014 sales and EPS guidance is unchanged from 3 months ago*; the minor sell-off today can attributed to the new USDA forecast for 2014 US farm income:

http://online.wsj.com/news/articles/SB10001424052702304104504579376923027879060

American farm incomes are expected to plunge by 27% to the lowest level since 2010, federal forecasters said Tuesday, as a sharp drop in crop prices erases some of the gains from years of strong growth in rural economies.

The U.S. Department of Agriculture projected that U.S. net farm income will fall to $95.8 billion this year from $130.5 billion in 2013, which was the highest level since 1973 on an inflation-adjusted basis.

…Between falling prices and stubbornly high costs, concern is growing among farmers that a lean year means operating below the cost of production, and many have already begun trimming expenses. Mr. Reed said he would put off trading in any pricey machinery this year, instead trying to eke out another growing season from his current equipment.

I wonder how much of this will actually happen. In any event, DE remains a compelling value (IMO) at a P/E ratio of only 10x FY2014 GAAP EPS.

*See slide #27 of http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/financialdata/reports/2014/2014_firstquarter_confcallslides.pdf . FY2014 sales are expected to be -3% YoY (including -1% from currency translation), and FY2014 GAAP EPS is expected to be $8.64 based on 380M diluted shares outstanding (#msg-94263062).