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Caterpillar Inc. (CAT - Free Report) stock has crushed the market and the Zacks Industrial Products sector over the trailing 12 months and the last decade.
The construction and mining equipment superpower is benefitting from the ongoing U.S. construction boom and CAT is prepared to ride various megatrends, such as infrastructure and energy spending higher over the next decade-plus.
Caterpillar is trading near fresh highs after climbing 37% in the last three months alone. Yet CAT’s valuation levels make the $146 billion market cap stock look flat-out cheap.
Entrenched in Ground Up Economic Growth
Caterpillar is a true giant in the U.S. and global economy, with its array of construction and mining equipment helping fuel wider economic expansion of nearly every kind. Caterpillar’s portfolio also includes technology products, alongside services such as rental and finance.
CAT officially breaks up its segments into Construction Industries, Resource Industries, Energy & Transportation, and the very-tiny All Other Segment.
Image Source: Zacks Investment Research
Every major economic undertaking, even in fast-growing technology areas such as data center expansion and semiconductor production, involve various major pieces of equipment Caterpillar makes.
Caterpillar is currently benefitting from the ongoing surge in construction spending in the U.S. from residential to commercial buildings and other areas such as energy and transportation.
Caterpillar is impacted by wider economic cycles. But CAT is prepared to profit from trillions of dollars of U.S. government spending on infrastructure, reshoring, and beyond in both the short term and over the next five to 10 to even 20 years.
For instance, the ongoing energy transition in both the U.S. and beyond “will support increased commodity demand, expanding our total addressable market and providing further opportunities for profitable growth,” CEO Jim Umpleby said on its Q2 earnings call.
Recent Performance and Outlook
CAT topped our Q2 estimates at the start of August on the back of 22% sales growth (10th straight period of top-line expansion), driven by gains across all three major segments. Caterpillar also posted record adjusted earnings and boosted its guidance.
CAT’s adjusted Q3 consensus earnings estimate has jumped 14% since its release, with its fiscal 2023 and 2024 outlooks improved by 11% and 15%, respectively over this same stretch. Caterpillar’s bottom-line positivity helps it land a Zacks Rank #1 (Strong Buy) right now.
Image Source: Zacks Investment Research
Zacks estimates call for Caterpillar’s revenue to climb 12% in 2023 and another 3% in 2024, which comes on top of 17% sales growth last year and 22% top-line expansion in FY21. Better yet, CAT’s adjusted earnings are projected to soar by 43% this year and then jump another 7% next year.
Price and Valuation
Caterpillar stock has more than doubled the S&P 500 over the last 25 years, up roughly 1,200% vs. 465%. CAT’s total return over this period stands at a whopping 2,500% compared to the S&P 500’s 860% and the Zacks Industrial Product sector’s 460%.
More recently, CAT has climbed 240% over the last 10 years to outpace the benchmark’s 170% and its sector’s 60%.
Image Source: Zacks Investment Research
CAT shares have surged over 50% in the last year and nearly 40% in the last three months. The stock dipped after hitting fresh records following its earnings release, but CAT has started to march back up toward those levels.
Caterpillar completed the golden cross, where the shorted-dated moving average moves back above the long-term trend, in mid-July. And CAT found upward support at its 50-week average in early June.
Despite CAT’s near-term and long-term outperformance and the fact that it is trading near fresh highs, its valuation levels might leave investors salivating. Caterpillar is trading 60% below its 10-year highs, nearly 20% below its median, and 15% beneath the Zacks Industrial sector at 13.5X forward 12-month earnings.
Image Source: Zacks Investment Research
Bottom Line
Caterpillar is part of the Zacks Manufacturing - Construction and Mining industry, currently in the top 1% of over 250 Zacks industries. And its 1.9% dividend yield tops its highly-ranked industry’s 1.6% average. Plus, CAT’s payout ratio sits at a very comfortable 26%.
Caterpillar is synonymous with every corner of construction, mining, oil and energy, agriculture, and beyond, and its iconic yellow machines are prepared to keep helping drive economic growth in the coming decades.
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Bull of the Day: Caterpillar Inc. (CAT)
Caterpillar Inc. (CAT - Free Report) stock has crushed the market and the Zacks Industrial Products sector over the trailing 12 months and the last decade.
The construction and mining equipment superpower is benefitting from the ongoing U.S. construction boom and CAT is prepared to ride various megatrends, such as infrastructure and energy spending higher over the next decade-plus.
Caterpillar is trading near fresh highs after climbing 37% in the last three months alone. Yet CAT’s valuation levels make the $146 billion market cap stock look flat-out cheap.
Entrenched in Ground Up Economic Growth
Caterpillar is a true giant in the U.S. and global economy, with its array of construction and mining equipment helping fuel wider economic expansion of nearly every kind. Caterpillar’s portfolio also includes technology products, alongside services such as rental and finance.
CAT officially breaks up its segments into Construction Industries, Resource Industries, Energy & Transportation, and the very-tiny All Other Segment.
Image Source: Zacks Investment Research
Every major economic undertaking, even in fast-growing technology areas such as data center expansion and semiconductor production, involve various major pieces of equipment Caterpillar makes.
Caterpillar is currently benefitting from the ongoing surge in construction spending in the U.S. from residential to commercial buildings and other areas such as energy and transportation.
Caterpillar is impacted by wider economic cycles. But CAT is prepared to profit from trillions of dollars of U.S. government spending on infrastructure, reshoring, and beyond in both the short term and over the next five to 10 to even 20 years.
For instance, the ongoing energy transition in both the U.S. and beyond “will support increased commodity demand, expanding our total addressable market and providing further opportunities for profitable growth,” CEO Jim Umpleby said on its Q2 earnings call.
Recent Performance and Outlook
CAT topped our Q2 estimates at the start of August on the back of 22% sales growth (10th straight period of top-line expansion), driven by gains across all three major segments. Caterpillar also posted record adjusted earnings and boosted its guidance.
CAT’s adjusted Q3 consensus earnings estimate has jumped 14% since its release, with its fiscal 2023 and 2024 outlooks improved by 11% and 15%, respectively over this same stretch. Caterpillar’s bottom-line positivity helps it land a Zacks Rank #1 (Strong Buy) right now.
Image Source: Zacks Investment Research
Zacks estimates call for Caterpillar’s revenue to climb 12% in 2023 and another 3% in 2024, which comes on top of 17% sales growth last year and 22% top-line expansion in FY21. Better yet, CAT’s adjusted earnings are projected to soar by 43% this year and then jump another 7% next year.
Price and Valuation
Caterpillar stock has more than doubled the S&P 500 over the last 25 years, up roughly 1,200% vs. 465%. CAT’s total return over this period stands at a whopping 2,500% compared to the S&P 500’s 860% and the Zacks Industrial Product sector’s 460%.
More recently, CAT has climbed 240% over the last 10 years to outpace the benchmark’s 170% and its sector’s 60%.
Image Source: Zacks Investment Research
CAT shares have surged over 50% in the last year and nearly 40% in the last three months. The stock dipped after hitting fresh records following its earnings release, but CAT has started to march back up toward those levels.
Caterpillar completed the golden cross, where the shorted-dated moving average moves back above the long-term trend, in mid-July. And CAT found upward support at its 50-week average in early June.
Despite CAT’s near-term and long-term outperformance and the fact that it is trading near fresh highs, its valuation levels might leave investors salivating. Caterpillar is trading 60% below its 10-year highs, nearly 20% below its median, and 15% beneath the Zacks Industrial sector at 13.5X forward 12-month earnings.
Image Source: Zacks Investment Research
Bottom Line
Caterpillar is part of the Zacks Manufacturing - Construction and Mining industry, currently in the top 1% of over 250 Zacks industries. And its 1.9% dividend yield tops its highly-ranked industry’s 1.6% average. Plus, CAT’s payout ratio sits at a very comfortable 26%.
Caterpillar is synonymous with every corner of construction, mining, oil and energy, agriculture, and beyond, and its iconic yellow machines are prepared to keep helping drive economic growth in the coming decades.