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Caterpillar (CAT) to Gain on Robust Backlog Amid Cost Woes
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Caterpillar Inc. (CAT - Free Report) is expected to benefit from improving demand in most of its end markets, robust backlog levels and its cost-control efforts. A strong liquidity position, ongoing investments in expanded offerings, and services and digital initiatives are expected to fuel growth as well. These factors will help the company offset the impact of higher input costs and supply chain headwinds currently plaguing the industry.
Strong Demand to Offset Costs in 2021
Caterpillar ended the third quarter of 2021 with an impressive backlog of $20.6 billion. The backlog was a solid $2.2 billion, which improved $7.2 billion on a year-over-year basis. This bodes well for the company’s top-line performance in the fourth quarter. Its ongoing restructuring efforts are expected to lead to a benefit of $150 million in 2021.
However, the company has been witnessing higher material costs, particularly of steel and other commodities. This along with higher freight costs, labor constraints and supply chain headwinds are expected to impede margins this year. Despite these headwinds, Caterpillar’s ongoing restructuring efforts and higher demand in its markets will drive growth.
End Markets Show Promise
In North America, demand from both residential and non-residential construction is likely to bolster sales for Caterpillar’s construction equipment. Also, perked up investments in roads, bridges, airports and waterways as per the Infrastructure Investment and Jobs Act highlight a huge opportunity. In Resource Industries, mining orders are on an uptrend, courtesy of improving metal prices. Miners are increasingly relying on autonomous systems to increase productivity, reduce costs and emissions. The company is, thus, enhancing its autonomous capabilities and bringing innovative products into markets.
In the Energy & Transportation segment, in the Oil & Gas sector, services growth and a focus on sustainability are likely to drive demand for new equipment. The company anticipates improvement in power generation, supported by data center activity, and sales to improve in transportation, courtesy of an increase in rail services and international businesses. Industrial is anticipated to see growth, backed by improving activity across most applications.
Solid Balance Sheet to Fuel Growth
So far this year, Caterpillar generated ME&T free cash flow of $4.2 billion. It remains on track to deliver its free cash flow target of an incremental $1 billion to $2 billion annually compared with cash flow performance during 2010 to 2016. Its cash and liquidity position remains strong with the company ending third-quarter 2021 with cash and short-term investments of $9.4 billion. ME&T debt at the end of second-quarter 2021 stood at $9.7 billion. Caterpillar’s current ratio is at 1.61, while the times interest earned ratio is currently at 7.7.
Caterpillar remains committed to customers and the future by continuing to invest in digital capabilities, connecting assets and job sites, and developing the next-generation productive and efficient products. The company plans to fund initiatives that drive long-term growth focused on areas of expanded offerings and services, and digital initiatives like e-commerce.
The Zacks Consensus Estimate for earnings for fiscal 2021 for Caterpillar is currently pegged at $10.35, suggesting year-over-year growth of 57.8%. The same for fiscal 2022 stands at $12.26, indicating an improvement of 18.4% on a year-over-year basis. Caterpillar has an estimated long-term earnings growth rate of 12%.
Over the past month, the Zacks Consensus Estimate for Caterpillar’s fiscal 2021 earnings has increased 1%. The consensus mark for fiscal 2022 has been revised upward by 0.4% over the same time frame. Caterpillar outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 30.2%.
Price Performance
Image Source: Zacks Investment Research
Shares of Caterpillar have gained 14.1% in a year’s time compared with the industry’s rally of 15.1%.
Zacks Rank
Caterpillar currently carries a Zacks Rank #3 (Hold).
Berry Global has an expected earnings growth of 2.6% for the current year. The consensus mark for its current-year earnings has gone up 17% over the last 60 days.
Berry Global has a trailing four-quarter earnings surprise of 16.5%, on average. It has a long-term estimated earnings growth of 10%. Its share price has gained 35% in the past year.
Emerson Electric has an expected earnings growth of 18.7% for the current year. The Zacks Consensus Estimate for EMR’s current-fiscal earnings has been revised upward by 7% over the last 60 days.
The company has a trailing four-quarter earnings surprise of 10.7%, on average. The company also has an estimated long-term earnings growth rate of 8.7%. EMR’s share price has gone up 14% in a year’s time.
Reliance Steel has an expected earnings growth of 162.5% for the current year. Over the past 60 days, the Zacks Consensus Estimate for its current-year earnings has been revised upward by 6%.
Reliance Steel has a trailing four-quarter earnings surprise of 4.4%, on average. Its share price has appreciated 28% over a year’s time.
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Caterpillar (CAT) to Gain on Robust Backlog Amid Cost Woes
Caterpillar Inc. (CAT - Free Report) is expected to benefit from improving demand in most of its end markets, robust backlog levels and its cost-control efforts. A strong liquidity position, ongoing investments in expanded offerings, and services and digital initiatives are expected to fuel growth as well. These factors will help the company offset the impact of higher input costs and supply chain headwinds currently plaguing the industry.
Strong Demand to Offset Costs in 2021
Caterpillar ended the third quarter of 2021 with an impressive backlog of $20.6 billion. The backlog was a solid $2.2 billion, which improved $7.2 billion on a year-over-year basis. This bodes well for the company’s top-line performance in the fourth quarter. Its ongoing restructuring efforts are expected to lead to a benefit of $150 million in 2021.
However, the company has been witnessing higher material costs, particularly of steel and other commodities. This along with higher freight costs, labor constraints and supply chain headwinds are expected to impede margins this year. Despite these headwinds, Caterpillar’s ongoing restructuring efforts and higher demand in its markets will drive growth.
End Markets Show Promise
In North America, demand from both residential and non-residential construction is likely to bolster sales for Caterpillar’s construction equipment. Also, perked up investments in roads, bridges, airports and waterways as per the Infrastructure Investment and Jobs Act highlight a huge opportunity. In Resource Industries, mining orders are on an uptrend, courtesy of improving metal prices. Miners are increasingly relying on autonomous systems to increase productivity, reduce costs and emissions. The company is, thus, enhancing its autonomous capabilities and bringing innovative products into markets.
In the Energy & Transportation segment, in the Oil & Gas sector, services growth and a focus on sustainability are likely to drive demand for new equipment. The company anticipates improvement in power generation, supported by data center activity, and sales to improve in transportation, courtesy of an increase in rail services and international businesses. Industrial is anticipated to see growth, backed by improving activity across most applications.
Solid Balance Sheet to Fuel Growth
So far this year, Caterpillar generated ME&T free cash flow of $4.2 billion. It remains on track to deliver its free cash flow target of an incremental $1 billion to $2 billion annually compared with cash flow performance during 2010 to 2016. Its cash and liquidity position remains strong with the company ending third-quarter 2021 with cash and short-term investments of $9.4 billion. ME&T debt at the end of second-quarter 2021 stood at $9.7 billion. Caterpillar’s current ratio is at 1.61, while the times interest earned ratio is currently at 7.7.
Caterpillar remains committed to customers and the future by continuing to invest in digital capabilities, connecting assets and job sites, and developing the next-generation productive and efficient products. The company plans to fund initiatives that drive long-term growth focused on areas of expanded offerings and services, and digital initiatives like e-commerce.
The Zacks Consensus Estimate for earnings for fiscal 2021 for Caterpillar is currently pegged at $10.35, suggesting year-over-year growth of 57.8%. The same for fiscal 2022 stands at $12.26, indicating an improvement of 18.4% on a year-over-year basis. Caterpillar has an estimated long-term earnings growth rate of 12%.
Over the past month, the Zacks Consensus Estimate for Caterpillar’s fiscal 2021 earnings has increased 1%. The consensus mark for fiscal 2022 has been revised upward by 0.4% over the same time frame. Caterpillar outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 30.2%.
Price Performance
Shares of Caterpillar have gained 14.1% in a year’s time compared with the industry’s rally of 15.1%.
Zacks Rank
Caterpillar currently carries a Zacks Rank #3 (Hold).
Others Industrial Stocks to Consider
Some better-ranked stocks in the Industrial Products sector include Berry Global Group, Inc. (BERY - Free Report) , Emerson Electric Co. (EMR - Free Report) and Reliance Steel & Aluminum Co. (RS - Free Report) . While BERY flaunts a Zacks Rank #1 (Strong Buy), EMR and RS carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Berry Global has an expected earnings growth of 2.6% for the current year. The consensus mark for its current-year earnings has gone up 17% over the last 60 days.
Berry Global has a trailing four-quarter earnings surprise of 16.5%, on average. It has a long-term estimated earnings growth of 10%. Its share price has gained 35% in the past year.
Emerson Electric has an expected earnings growth of 18.7% for the current year. The Zacks Consensus Estimate for EMR’s current-fiscal earnings has been revised upward by 7% over the last 60 days.
The company has a trailing four-quarter earnings surprise of 10.7%, on average. The company also has an estimated long-term earnings growth rate of 8.7%. EMR’s share price has gone up 14% in a year’s time.
Reliance Steel has an expected earnings growth of 162.5% for the current year. Over the past 60 days, the Zacks Consensus Estimate for its current-year earnings has been revised upward by 6%.
Reliance Steel has a trailing four-quarter earnings surprise of 4.4%, on average. Its share price has appreciated 28% over a year’s time.