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Reasons to Retain Caterpillar (CAT) Stock in Your Portfolio
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Caterpillar Inc. (CAT - Free Report) is well-poised for growth, courtesy of improving demand in 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.
Caterpillar currently has a Zacks Rank #3 (Hold) and a VGM Score of B. 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’s adjusted earnings per share was $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. All of its segments witnessed strong end-market demand, and higher pricing helped offset the impacts of unfavorable costs on its earnings in the quarter under discussion. 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.
Upward Movement in Estimates: Over the past 60 days, the Zacks Consensus Estimate for Caterpillar’s fiscal 2022 earnings has increased 1%. The consensus mark for fiscal 2022 has moved up 0.5% 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 Projections: The Zacks Consensus Estimate for 2022 earnings is currently pegged at $12.64, suggesting year-over-year growth of around 17%. The consensus mark for fiscal 2023 earnings stands at $14.78, indicating an improvement of 17% on a year-over-year basis.
Caterpillar has an estimated long-term earnings growth rate of 12%.
Strong Demand to Fuel Top-Line
In North America, the demand in both residential and non-residential construction sectors is likely to bolster 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 drive 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 enhance productivity, and reduce costs and emissions. Hence, the company is enhancing its autonomous capabilities and bringing innovative products into the market.
In the Energy & Transportation segment, strong order rates in most applications are expected to support revenues in 2022. Industrial is anticipated to witness growth, with activity strengthening across most applications.
Strong Balance Sheet
Caterpillar expects to deliver ME&T free cash flow between $4 billion and $8 billion this year. 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 stood at $9.76 billion. Compared to the base of 4.5 in 2017, its times interest earned ratio has improved substantially over the years and is currently at 10.2. Recently, Caterpillar hiked its quarterly dividend by 8% to $1.20 per share. Caterpillar has paid higher dividends to shareholders for 28 straight years and is a member of the S&P 500 Dividend Aristocrat Index. Over the past four years, the company has returned an average of 99% of its ME&T free cash flow to shareholders, which is in sync with its target to return all of its ME&T free cash flow to shareholders over time.
Growth Strategies in Place
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 has been investing in expanded offerings and services, and digital initiatives like e-commerce to drive long-term growth.
Price Performance
Image Source: Zacks Investment Research
Shares of Caterpillar have fallen 9.4% year to date compared with the industry’s decline of 10.9%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are are Greif Inc. (GEF - Free Report) , Myers Industries (MYE - Free Report) and Amcor plc (AMCR - Free Report) . Greif and Myers Industries sport a Zacks Rank #1 at present, while Amcor carries a Zacks Rank #2.
Greif has an estimated earnings growth rate of 36% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 17%.
Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. The company’s shares have gained 4% year to date.
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. Year to date, Myers Industries’ shares have risen 6%.
Amcor has an estimated earnings growth rate of 9.5% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 3%.
Amcor pulled off a trailing four-quarter earnings surprise of 2.4%, on average. The company’s shares have appreciated 3% so far this year.
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Reasons to Retain Caterpillar (CAT) Stock in Your Portfolio
Caterpillar Inc. (CAT - Free Report) is well-poised for growth, courtesy of improving demand in 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.
Caterpillar currently has a Zacks Rank #3 (Hold) and a VGM Score of B. 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’s adjusted earnings per share was $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. All of its segments witnessed strong end-market demand, and higher pricing helped offset the impacts of unfavorable costs on its earnings in the quarter under discussion. 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.
Upward Movement in Estimates: Over the past 60 days, the Zacks Consensus Estimate for Caterpillar’s fiscal 2022 earnings has increased 1%. The consensus mark for fiscal 2022 has moved up 0.5% 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 Projections: The Zacks Consensus Estimate for 2022 earnings is currently pegged at $12.64, suggesting year-over-year growth of around 17%. The consensus mark for fiscal 2023 earnings stands at $14.78, indicating an improvement of 17% on a year-over-year basis.
Caterpillar has an estimated long-term earnings growth rate of 12%.
Strong Demand to Fuel Top-Line
In North America, the demand in both residential and non-residential construction sectors is likely to bolster 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 drive 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 enhance productivity, and reduce costs and emissions. Hence, the company is enhancing its autonomous capabilities and bringing innovative products into the market.
In the Energy & Transportation segment, strong order rates in most applications are expected to support revenues in 2022. Industrial is anticipated to witness growth, with activity strengthening across most applications.
Strong Balance Sheet
Caterpillar expects to deliver ME&T free cash flow between $4 billion and $8 billion this year. 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 stood at $9.76 billion. Compared to the base of 4.5 in 2017, its times interest earned ratio has improved substantially over the years and is currently at 10.2. Recently, Caterpillar hiked its quarterly dividend by 8% to $1.20 per share. Caterpillar has paid higher dividends to shareholders for 28 straight years and is a member of the S&P 500 Dividend Aristocrat Index. Over the past four years, the company has returned an average of 99% of its ME&T free cash flow to shareholders, which is in sync with its target to return all of its ME&T free cash flow to shareholders over time.
Growth Strategies in Place
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 has been investing in expanded offerings and services, and digital initiatives like e-commerce to drive long-term growth.
Price Performance
Image Source: Zacks Investment Research
Shares of Caterpillar have fallen 9.4% year to date compared with the industry’s decline of 10.9%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are are Greif Inc. (GEF - Free Report) , Myers Industries (MYE - Free Report) and Amcor plc (AMCR - Free Report) . Greif and Myers Industries sport a Zacks Rank #1 at present, while Amcor carries a Zacks Rank #2.
Greif has an estimated earnings growth rate of 36% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 17%.
Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. The company’s shares have gained 4% year to date.
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. Year to date, Myers Industries’ shares have risen 6%.
Amcor has an estimated earnings growth rate of 9.5% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 3%.
Amcor pulled off a trailing four-quarter earnings surprise of 2.4%, on average. The company’s shares have appreciated 3% so far this year.