The Zacks Analyst Blog Highlights: Deere & Company, Caterpillar, CNH Global NV, American International Group and General Motors - Press Releases

By Zacks Equity Research,

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For Immediate Release

Chicago, IL - November 23, 2011 - announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Deere & Company ( DE ), Caterpillar Inc. ( CAT ), CNH Global NV ( CNH ), American International Group Inc. ( AIG ) and General Motors Company ( GM ).

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Here are highlights from Tuesday's Analyst Blog:

Earnings Preview: Deere

Deere & Company ( DE ) is scheduled to announce its fourth quarter and fiscal 2011 results on November 23, 2011. The current Zacks Consensus Estimate is $1.44 for the fourth quarter and $6.44 for fiscal 2011, projecting year-over-year growth of 34.1% and 38.5%, respectively.

With respect to earnings surprise, over the trailing four quarters, Deere outperformed the Zacks Consensus Estimate. The average earnings surprise was 9.04%, implying that Deere has surpassed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Previous Quarter Recap

Deere's third-quarter EPS of $1.69 beat the Zacks Consensus Estimate and climbed 17% year over year, largely driven by strong demand for farm machinery and improved conditions in the construction and forestry markets.

Deere's worldwide total sales increased 22% year over year to $8.4 billion, beating the Zacks Consensus Estimate of $7.7 billion. Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) were $6.4 billion, a 22% year-over-year increase including favorable currency translation effect of 6% and a price increase of 3%. On a geographic basis, equipment net sales were up 10% in the United States and Canada and 49% in the rest of the world.

Looking Forward

Deere expects equipment sales to grow 20% in the fiscal fourth quarter and about 25% for fiscal 2011. The guidance includes a favorable currency-translation impact of 4% in both the fourth quarter and fiscal year. Full year guidance includes an adverse effect of about $70 million in sales and $10 million in operating profit from the earthquake and tsunami in Japan. Net income is estimated at $2.7 billion for 2011.

Segment wise, Deere expects worldwide sales of Agriculture and Turf equipment to grow by 21% for full year 2011, benefiting from favorable global farm conditions. Construction and Forestry equipment sales are expected to improve 45% for 2011.

Net income from Financial Services is estimated to be $460 million, reflecting continued growth in the portfolio.

Region wise, Deere expects industry farm-machinery sales in the U.S. and Canada to grow 5% to 10% for 2011. Western and Central Europe is expected to increase 10% to 15% while sales in the Commonwealth of Independent States are expected to see moderate gains.

Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat with the 2010 level. However, in South America, the company expects industry sales to decline 5% over 2010.

Estimate Revision Trend   

For the fourth quarter, none of the analysts out of 14 covering Deere have revised their estimates over the past 30 days. For fiscal 2011, only one estimate out of 16 has been raised for Deere.

The limited number of estimate revisions indicates the absence of any major catalyst driving the quarterly results. Consequently, most of the analysts are abiding by their estimates projected during the third quarter results.

Magnitude of Estimate Revisions   

Over the past 30 days, consensus earnings estimate for the fourth and final quarter of fiscal 2011 inched up a cent to $1.44. For fiscal 2011, there has been no change to the consensus of $6.44 over the past 30 days. There has been an utter lack of movement in the past 7 days. 

Our Take

Farm cash receipts are the best gauge for farm machinery sales. Farm cash receipts reflect levels of farm commodity prices, acreage planted, crop yields and government policies, including the amount and timing of government payments. Deere's forecast for farm cash receipts for 2011 stands at $378 billion compared with $321 billion in 2010. The forecast exceeds the previous record of $330.5 billion in 2008 by almost 14%.

The USDA forecasts net farm income to reach $103.6 billion in 2011, up nearly 31% year over year, the highest inflation-adjusted value for net farm income since 1974. This will drive farmers to invest in the latest machinery to maximize their productivity, thereby benefiting the company.

Deere has been growing its manufacturing footprint overseas in markets such as Brazil, Russia and India. The expansion into the emerging markets should provide long-term growth opportunities.

Brazil is among the world's largest producers and exporters of sugar, soybeans, corn and cotton. The company is the second leading producer of ethanol. Global population growth and rising living standards in the emerging markets are fueling growth in global food demand.

On the flipside, margin expansion will be constrained in 2011 given the increased costs for New Tier 4 products as well as raw material inflation, higher overhead associated with new facilities and SAP implementation costs. Furthermore, production inefficiencies associated with the transition to the initial Tier 4 products as well as heightened R&D expense will also affect margins.

The company currently retains a Zacks #3 Rank (short-term Hold recommendation).

Illinois-based Deere & Co. is engaged in the production and distribution of agricultural and forestry equipment, construction equipment and engines worldwide. The company sells products in the U.S. and Canada through branch offices as well as through distributors and dealers for the resale of products internationally. Deere competes with Caterpillar Inc. ( CAT ) and CNH Global NV ( CNH ).

TARP Continues to Recover Funds

The Treasury has added $12.2 million to its kitty by selling warrants in 17 Troubled Asset Relief Program (TARP) banks that have already repaid the bailout money. This indicates that the Treasury is clutching every opportunity to recoup the cost of the $700 billion bailout program that was initiated three years back to rescue the nation's financial system.

However, many of the institutions are yet to repay their TARP loans and the Treasury holds significant stakes in many of the rescued companies. This keeps the program far from wrapping up.

Money Yet to Come

Even after the sale of 200 million American International Group Inc. ( AIG ) shares in May, the Treasury still owns about 77% stake (down from 92%) in the company. Additionally, the Treasury owns about $11.3 billion AIG preferred shares and plans to exit from its holding on the company over the next couple of years.

The Treasury also holds significant stakes in other rescued companies like General Motors Company ( GM ) , Chrysler and Ally Financial (previously known as GMAC). Chrysler has repaid $10.6 billion of its total $12.5 billion TARP loan and General Motors has repaid $8.1 billion of the total $13.4 billion it borrowed from the Treasury. Overall, out of the total $80 billion given to the auto industry, only $29 billion has been recovered.

Similarly, about $20 billion is still due from more than 500 banks. However, the TARP for banks turned into a profit due to steady dividends and interest payments.

Bank Bailout is Profitable 

Out of the total $700 billion bailout money, about $245 billion was handed out to banks. So far, the Treasury has recovered a total of $317.6 billion from bailed out banks, bringing home a significant profit.

Will Income Offset Costs?

The government's expected recovery from the bailed out institutions along with dividend and interest income will more than offset costs related to the pending deals. Looking back at a calculation released by the Treasury in March, TARP will earn about $23.6 billion by 2013.

TARP: A Success Story

Considering the effectiveness in easing credit and capital market pressure, restoring confidence in the financial system and recovering the injected money at a lower-than-expected cost, it can be concluded that the government's highly criticized bailout program has finally turned out to be a winner.

Moreover, the final success of TARP is probably still in the works. While most of the major financial institutions have cleared their dues, many banks are still to repay their bailout loans.

Though a major chunk of the TARP fund will likely be absorbed by the housing programs initiated by the government, the Treasury's recovery mission continues, raising optimism for greater success.

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AMER INTL GRP ( AIG ): Free Stock Analysis Report
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CNH GLOBAL NV ( CNH ): Free Stock Analysis Report
DEERE & CO ( DE ): Free Stock Analysis Report
GENERAL MOTORS ( GM ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: AIG , CAT , CNH , DE , GM

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