Deere & Company (NYSE:DE) will spend $5.2 billion to grow its road construction business with the purchase of Germany’s Wirtgen Group. DE stock gained more than 2% this morning following the deal’s announcement.
The acquisition is part of Deere’s diversification plan, expanding its business from primarily agricultural machinery to a mix with road construction equipment, according to a company announcement. The all-cash transaction is expected to be accretive to earnings and will be funded with a combination of cash and new equipment operations debt financing, Deere said.
Privately held Wirtgen produces large rock crushers, milling machines, and equipment to make hot asphalt for road projects. That will be added to DE’s existing road-building equipment portfolio, including loaders and dump trucks to load rocks into crushers from quarries, and earthmoving rigs for construction sites, along with dozers and road graders.
Max Guinn, president of Deere’s Worldwide Construction & Forestry Division, said, “This transaction enhances our global distribution options in construction equipment and enhances our capabilities in emerging markets. Spending on road construction and transportation projects has grown at a faster rate than the overall construction industry and tends to be less cyclical. There is recognition globally that infrastructure improvements must be a priority and roads and highways are among the most critical in need of repair and replacement.”
Wirtgen sells its equipment through a network of company-owned and independent dealers in almost 100 countries.
Earlier this week, Zacks Investment Research assigned DE stock a “#1 rank” (Strong Buy), citing an estimated long-term earnings growth rate of 7.58%. “Estimates for Deere have moved up over the past 30 days, reflecting the optimistic outlook of analysts,” Zacks wrote. “The earnings estimate for third-quarter fiscal 2017, fiscal 2017 and 2018 have all gone up in the last 30 days.”
DE stock has added more than 21% this year, including an 11% gain in the past month fueled by a mid-May announcement that Q2 profit increased 62% over last year’s comparable period on revenue that was up 2.1%.
