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Here's Why You Should Retain Caterpillar (CAT) Stock Now

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Caterpillar Inc. (CAT - Free Report) is well-poised for growth in its earnings in the forthcoming quarters, backed by improving demand in most of its end markets and cost-control efforts. A strong liquidity position, ongoing investments in expanded offerings, and services and digital initiatives are expected to contribute to growth as well.

Caterpillar currently has a Zacks Rank #3 (Hold) 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), 2 (Buy) or 3 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s delve deeper and analyze the factors that make this stock worth holding on to.

Solid Q1 Results & Robust Backlog Levels: Caterpillar reported first-quarter 2022 revenues of $13.6 billion, which beat the Zacks Consensus Estimate of $13.5 billion. The top line improved 14% from the year-ago quarter. All of its segments witnessed strong end-market demand, which drove its top line. Higher pricing helped offset the impacts of unfavorable manufacturing costs (mainly higher material and freight costs) on its earnings in the quarter.

Adjusted earnings per share were $2.88 in first-quarter 2022, which surpassed the Zacks Consensus Estimate of $2.66. The company reported earnings per share of $2.87 in the year-ago quarter.

The company has been witnessing higher end-user demand, which is contributing to growth in earnings and revenues over the five straight quarters. Caterpillar’s backlog at the end of the first quarter of 2022 was an impressive $26.4 billion. This bodes well for the company’s top-line performance in the days ahead.

Rise in Estimates: Over the past 30 days, the Zacks Consensus Estimate for Caterpillar’s fiscal 2022 earnings has increased 2%. The consensus mark for fiscal 2022 has also moved up 1% over the same time frame.

Positive Earnings Surprise History: Caterpillar beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 14%.

Healthy Growth Prospects: The Zacks Consensus Estimate for earnings for fiscal 2022 for Caterpillar is currently pegged at $12.58, suggesting year-over-year growth of 16.4%. The same for fiscal 2022 is pegged at $14.78, indicating an improvement of 17.5% on a year-over-year basis.

Caterpillar has an estimated long-term earnings growth rate of 12%.

Growth Drivers in Place

In North America, the demand in both residential and non-residential construction sectors is likely to boost the demand for Caterpillar’s construction equipment. The perked-up investment in roads, bridges, airports and waterways due to the U.S. Infrastructure Investment and Jobs Act represents a huge opportunity for Caterpillar.

In the Asia Pacific (barring China), higher commodity prices, housing strength and increased government spending on infrastructure will support construction equipment sales. Increased construction activity will support machine demand in EAME and Latin America.

In Resource Industries, mining orders are on an uptrend, courtesy of improving metal prices. Miners are increasingly relying on autonomous systems to increase productivity, and reduce costs and emissions. Hence, the company is enhancing its autonomous capabilities and bringing innovative products into markets.

In the Energy & Transportation segment, strong order rates in most applications are expected to support revenues in 2022. Industrial is expected to witness growth, with activity strengthening across most applications.

Its cash and liquidity position remains strong, with the company ending the first quarter of 2022 with cash and short-term investments of $6.5 billion. ME&T debt at the end of first-quarter 2022 stood at $9.76 billion. Caterpillar’s current ratio is at 1.44, while the times interest earned ratio is currently at 10.2.

Caterpillar continues to focus on 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 efforts focused on areas of expanded offerings and services, and digital initiatives like e-commerce and drive long-term growth.

Price Performance


Zacks Investment Research
Image Source: Zacks Investment Research


Shares of Caterpillar have gained 12.2% in three months compared with the industry’s growth of 6.1%.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Graphic Packaging Holding Company (GPK - Free Report) , Myers Industries (MYE - Free Report) and Packaging Corporation (PKG - Free Report) .  All of these stocks currently flaunt a Zacks Rank #1 (Strong Buy).

Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.

Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 1% in the past three months

Myers Industries has an expected earnings growth rate of 67% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 27% in the past 60 days.

MYE has a trailing four-quarter earnings surprise of 20.1%, on average. Myers Industries’ shares have gained 31% over the past three months.

Packaging Corporation has an expected earnings growth rate of 16.2% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 4.2% in the past 60 days.

PKG has a trailing four-quarter earnings surprise of 19.6%, on average. Packaging Corporation’s shares have gained 1% in the past three months.