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Reasons to Hold Caterpillar (CAT) Stock in Your Portfolio
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Caterpillar Inc. (CAT - Free Report) is well-poised for growth, backed by 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 Q2 Results & Robust Backlog Levels: Caterpillar’s adjusted earnings per share were $3.18 in second-quarter 2022, which surpassed the Zacks Consensus Estimate of $3.00. The bottom-line figure marked a 22% improvement year over year. Strong demand across most of its end markets and a favorable price realization improved earnings in the quarter. Backlog at the end of the second quarter of 2022 was an impressive $28.4 billion. This bodes well for CAT’s top-line performance in the days ahead.
Positive Earnings Surprise History: Caterpillar’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 13.15%.
Healthy Growth Projections: The Zacks Consensus Estimate for 2022 earnings is currently pegged at $12.69, suggesting growth of around 17% from the year-ago reported figure. The consensus mark for fiscal 2023 earnings stands at $14.11, indicating an improvement of 11% from the prior-year reported number. Caterpillar has an estimated long-term earnings growth rate of 12%.
Sturdy Demand to Fuel Top Line
In North America, demand in both residential and non-residential construction sectors is likely to bolster 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 CAT. In the Asia Pacific (barring China) region, 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, Caterpillar 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 a free cash flow between $4 billion and $8 billion this year. Its cash and liquidity position remains strong, as it ended the second quarter of 2022 with cash and short-term investments of $6 billion. ME&T debt stood at $9.6 billion. Its times interest earned ratio has improved substantially over the years and is currently 10.5.
Recently, Caterpillar hiked its quarterly dividend by 8% to $1.20 per share. CAT has paid out higher dividends to its shareholders for 28 straight years and is a member of the S&P 500 Dividend Aristocrat Index. Its dividend yield and payout ratio are higher than its peers.
Over the past four years, CAT has returned an average of 99% of its ME&T free cash flow to its shareholders, in sync with its target to return all its ME&T free cash flow to the shareholders over time.
Growth Strategies in Place
Caterpillar continues to focus on customers and the future by steadily investing in digital capabilities, connecting assets and job sites, and developing next-generation productive and efficient products. CAT is consistently 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 gained 2.8% in the past six months compared with the industry’s growth of 1.1%.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Applied Industrial Technologies, Inc. (AIT - Free Report) , Sonoco Products Company (SON - Free Report) and Greif Inc. (GEF - Free Report) . While AIT and SON sport a Zacks Rank of 1, GEF carries a Zacks Rank #2, at present.
Applied Industrial has an estimated earnings growth rate of 10.9% for fiscal 2023. In the past 60 days, the Zacks Consensus Estimate for fiscal 2023 earnings has been revised 6% upward.
Applied Industrial pulled off a trailing four-quarter earnings surprise of 22.8%, on average. AIT’s shares have surged 32.2% in a year.
Sonoco has an expected earnings growth rate of 78.3% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 18% in the past 60 days.
Sonoco has a trailing four-quarter earnings surprise of 4.06%, on average. SON’s shares have moved up 11% in the past six months.
Greif has an estimated earnings growth rate of 37% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised 17% upward.
Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. GEF’s shares have risen 18.6% in the past year.
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Reasons to Hold Caterpillar (CAT) Stock in Your Portfolio
Caterpillar Inc. (CAT - Free Report) is well-poised for growth, backed by 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 Q2 Results & Robust Backlog Levels: Caterpillar’s adjusted earnings per share were $3.18 in second-quarter 2022, which surpassed the Zacks Consensus Estimate of $3.00. The bottom-line figure marked a 22% improvement year over year. Strong demand across most of its end markets and a favorable price realization improved earnings in the quarter. Backlog at the end of the second quarter of 2022 was an impressive $28.4 billion. This bodes well for CAT’s top-line performance in the days ahead.
Positive Earnings Surprise History: Caterpillar’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 13.15%.
Healthy Growth Projections: The Zacks Consensus Estimate for 2022 earnings is currently pegged at $12.69, suggesting growth of around 17% from the year-ago reported figure. The consensus mark for fiscal 2023 earnings stands at $14.11, indicating an improvement of 11% from the prior-year reported number. Caterpillar has an estimated long-term earnings growth rate of 12%.
Sturdy Demand to Fuel Top Line
In North America, demand in both residential and non-residential construction sectors is likely to bolster 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 CAT. In the Asia Pacific (barring China) region, 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, Caterpillar 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 a free cash flow between $4 billion and $8 billion this year. Its cash and liquidity position remains strong, as it ended the second quarter of 2022 with cash and short-term investments of $6 billion. ME&T debt stood at $9.6 billion. Its times interest earned ratio has improved substantially over the years and is currently 10.5.
Recently, Caterpillar hiked its quarterly dividend by 8% to $1.20 per share. CAT has paid out higher dividends to its shareholders for 28 straight years and is a member of the S&P 500 Dividend Aristocrat Index. Its dividend yield and payout ratio are higher than its peers.
Over the past four years, CAT has returned an average of 99% of its ME&T free cash flow to its shareholders, in sync with its target to return all its ME&T free cash flow to the shareholders over time.
Growth Strategies in Place
Caterpillar continues to focus on customers and the future by steadily investing in digital capabilities, connecting assets and job sites, and developing next-generation productive and efficient products. CAT is consistently 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 gained 2.8% in the past six months compared with the industry’s growth of 1.1%.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Applied Industrial Technologies, Inc. (AIT - Free Report) , Sonoco Products Company (SON - Free Report) and Greif Inc. (GEF - Free Report) . While AIT and SON sport a Zacks Rank of 1, GEF carries a Zacks Rank #2, at present.
Applied Industrial has an estimated earnings growth rate of 10.9% for fiscal 2023. In the past 60 days, the Zacks Consensus Estimate for fiscal 2023 earnings has been revised 6% upward.
Applied Industrial pulled off a trailing four-quarter earnings surprise of 22.8%, on average. AIT’s shares have surged 32.2% in a year.
Sonoco has an expected earnings growth rate of 78.3% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 18% in the past 60 days.
Sonoco has a trailing four-quarter earnings surprise of 4.06%, on average. SON’s shares have moved up 11% in the past six months.
Greif has an estimated earnings growth rate of 37% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised 17% upward.
Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. GEF’s shares have risen 18.6% in the past year.