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Here's Why You Should Add Caterpillar (CAT) to Your Portfolio
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Caterpillar Inc. (CAT - Free Report) is poised well to benefit from improving industrial activity and demand in construction and mining sectors. Savings from its restructuring actions will boost margins. Further, a robust liquidity position, investments in expanded offerings, and services and digital initiatives are expected to fuel growth.
Shares of Caterpillar have surged 64.3% over the past year compared with the industry’s rally of 65.3%.
Image Source: Zacks Investment Research
The company currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy), or 2, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s take a look into the factors that make this stock an attractive choice for investors right now.
Upbeat Q1 Results & Improved Backlog
Caterpillar witnessed a 74% year-over-year improvement in first-quarter 2021 adjusted earnings per share to $1.93, while revenues increased 12% year over year to $11.9 billion. This marked a turnaround from past four quarters’ stint of year-over-year declines in both its top and bottom lines due to pandemic induced weak demand. Also, Caterpillar’s backlog at the end of the reported quarter was $16.9 billion, which was up $2.7 billion on a sequential basis and $2.8 billion on a year-over-year basis.
Estimates Going Up
Over the past two months, the Zacks Consensus Estimate for Caterpillar for fiscal 2021 has increased around 17%. The consensus mark for fiscal 2022 has also been revised upward by 11% over the same time frame.
Positive Earnings Surprise History
Caterpillar has outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 41.6%.
Healthy Growth Prospects
The Zacks Consensus Estimate for earnings for fiscal 2021 for Caterpillar is currently pegged at $9.60, suggesting year-over-year growth of 46%. For fiscal 2022, the estimate for earnings is at $11.91, indicating year-over-year improvement of 24%.
Growth Drivers in Place
The pickup in global industrial activity due to the resumption of the global economic activities bodes well for Caterpillar. In North America, the ongoing strength in residential activity will boost demand for Caterpillar’s construction equipment and non-residential construction is expected to pick up pace throughout the year. In China, the outlook for the construction sector holds promise backed by government spending on infrastructure and building activity. Demand in also improving in Europe. In Latin America, Brazil's construction sector will support machine demand.
In Resource Industries, mining orders are picking up this year, courtesy of improving metal prices. Further, due to pandemic, several miners had deferred rebuilds and maintenance from last year to 2021, which will aid the segment’s performance. The company also expects a recovery in heavy construction and quarry and aggregates from their low levels in 2020. In the Energy & Transportation segment, the company anticipates some improvement in power generation supported by data center activity. It also anticipates sales to improve in transportation courtesy of increase in rail services and international businesses.
Overall, sales in 2021 are likely to be stronger owing to the lack of a dealer inventory reduction as seen last year and improving market conditions. Further, the company expects a benefit of $150 million in 2021 from its restructuring actions undertaken last year.
Its cash and liquidity position remains strong with the company ending first-quarter 2021 with cash and short-term investments of $11.3 billion. ME&T debt at the end of the quarter stood at $11.05 billion. Caterpillar’s current ratio is at 1.60 and times interest earned ratio is currently at 5.1. These figures indicate that the company is in a good position to meet its debt obligations. Caterpillar recently hiked its quarterly dividend by 8% to $1.11 per share. Its current dividend yield is 2.04% — higher than the industry’s 1.93%. It has a five-year average dividend yield of 2.84%, five-year dividend growth rate of 8.5% and average payout ratio of 54%.
Caterpillar continues to focus on customers and on the future by continuing to invest in digital capabilities, connecting assets and jobsites along with developing the next generation of more productive and efficient products. The company plans to fund initiatives that drive long-term profitable growth focused on areas of expanded offerings and services, and digital initiatives like e-commerce. The company’s autonomous capabilities provide it with a competitive edge in mining.
Other Stocks to Consider
Some other top-ranked stocks in the industrial products sector are Greif, Inc. (GEF - Free Report) , Mueller Industries, Inc. (MLI - Free Report) and Encore Wire Corporation (WIRE - Free Report) . All of these stocks sport a Zacks Rank #1, at present.
Greif has a projected earnings growth rate of 47% for the current fiscal. The stock has appreciated around 84% in a year’s time.
Mueller Industries has an estimated earnings growth rate of 67% for the ongoing year. In a year’s time, the company’s shares have rallied nearly 72%.
Encore Wire has an anticipated earnings growth rate of 49.5% for the current year. The company’s shares have gained around 67% in the past year.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
Here's Why You Should Add Caterpillar (CAT) to Your Portfolio
Caterpillar Inc. (CAT - Free Report) is poised well to benefit from improving industrial activity and demand in construction and mining sectors. Savings from its restructuring actions will boost margins. Further, a robust liquidity position, investments in expanded offerings, and services and digital initiatives are expected to fuel growth.
Shares of Caterpillar have surged 64.3% over the past year compared with the industry’s rally of 65.3%.
The company currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy), or 2, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s take a look into the factors that make this stock an attractive choice for investors right now.
Upbeat Q1 Results & Improved Backlog
Caterpillar witnessed a 74% year-over-year improvement in first-quarter 2021 adjusted earnings per share to $1.93, while revenues increased 12% year over year to $11.9 billion. This marked a turnaround from past four quarters’ stint of year-over-year declines in both its top and bottom lines due to pandemic induced weak demand. Also, Caterpillar’s backlog at the end of the reported quarter was $16.9 billion, which was up $2.7 billion on a sequential basis and $2.8 billion on a year-over-year basis.
Estimates Going Up
Over the past two months, the Zacks Consensus Estimate for Caterpillar for fiscal 2021 has increased around 17%. The consensus mark for fiscal 2022 has also been revised upward by 11% over the same time frame.
Positive Earnings Surprise History
Caterpillar has outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 41.6%.
Healthy Growth Prospects
The Zacks Consensus Estimate for earnings for fiscal 2021 for Caterpillar is currently pegged at $9.60, suggesting year-over-year growth of 46%. For fiscal 2022, the estimate for earnings is at $11.91, indicating year-over-year improvement of 24%.
Growth Drivers in Place
The pickup in global industrial activity due to the resumption of the global economic activities bodes well for Caterpillar. In North America, the ongoing strength in residential activity will boost demand for Caterpillar’s construction equipment and non-residential construction is expected to pick up pace throughout the year. In China, the outlook for the construction sector holds promise backed by government spending on infrastructure and building activity. Demand in also improving in Europe. In Latin America, Brazil's construction sector will support machine demand.
In Resource Industries, mining orders are picking up this year, courtesy of improving metal prices. Further, due to pandemic, several miners had deferred rebuilds and maintenance from last year to 2021, which will aid the segment’s performance. The company also expects a recovery in heavy construction and quarry and aggregates from their low levels in 2020. In the Energy & Transportation segment, the company anticipates some improvement in power generation supported by data center activity. It also anticipates sales to improve in transportation courtesy of increase in rail services and international businesses.
Overall, sales in 2021 are likely to be stronger owing to the lack of a dealer inventory reduction as seen last year and improving market conditions. Further, the company expects a benefit of $150 million in 2021 from its restructuring actions undertaken last year.
Its cash and liquidity position remains strong with the company ending first-quarter 2021 with cash and short-term investments of $11.3 billion. ME&T debt at the end of the quarter stood at $11.05 billion. Caterpillar’s current ratio is at 1.60 and times interest earned ratio is currently at 5.1. These figures indicate that the company is in a good position to meet its debt obligations. Caterpillar recently hiked its quarterly dividend by 8% to $1.11 per share. Its current dividend yield is 2.04% — higher than the industry’s 1.93%. It has a five-year average dividend yield of 2.84%, five-year dividend growth rate of 8.5% and average payout ratio of 54%.
Caterpillar continues to focus on customers and on the future by continuing to invest in digital capabilities, connecting assets and jobsites along with developing the next generation of more productive and efficient products. The company plans to fund initiatives that drive long-term profitable growth focused on areas of expanded offerings and services, and digital initiatives like e-commerce. The company’s autonomous capabilities provide it with a competitive edge in mining.
Other Stocks to Consider
Some other top-ranked stocks in the industrial products sector are Greif, Inc. (GEF - Free Report) , Mueller Industries, Inc. (MLI - Free Report) and Encore Wire Corporation (WIRE - Free Report) . All of these stocks sport a Zacks Rank #1, at present.
Greif has a projected earnings growth rate of 47% for the current fiscal. The stock has appreciated around 84% in a year’s time.
Mueller Industries has an estimated earnings growth rate of 67% for the ongoing year. In a year’s time, the company’s shares have rallied nearly 72%.
Encore Wire has an anticipated earnings growth rate of 49.5% for the current year. The company’s shares have gained around 67% in the past year.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>