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Reasons to Add Caterpillar (CAT) Stock to Your Portfolio Now
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Caterpillar Inc. (CAT - Free Report) has been benefiting from improving demand in its end markets and cost-control efforts which are reflected in its 10-quarter stint of year-over-year revenue and earnings growth. This is impressive considering the inflationary pressures and supply-chain snarls faced by the company as well as the industry at large.
CAT’s solid backlog and upbeat outlook for its segments position it well for improved results in the forthcoming quarters as well. The company’s ongoing investments in its expanded offerings, services and digital initiatives are expected to contribute to growth.
Caterpillar currently sports a Zacks Rank #1 (Strong Buy).
Let’s delve deeper and analyze the factors that make this stock a solid pick right now.
Solid Q2 Results & Robust Backlog Levels: Caterpillar’s adjusted earnings per share were $5.55 in second-quarter 2023, which marked a 74.5% year-over-year improvement. Strong demand across most of its end markets and favorable price realization led to improved earnings despite unfavorable manufacturing costs in the quarter.
The backlog at the end of the quarter was an impressive $30.7 billion. This bodes well for CAT’s top-line performance in the quarters ahead.
Positive Earnings Surprise History: Caterpillar has an average earnings surprise of 18.5% in the trailing four quarters.
Upbeat Growth Projections: The Zacks Consensus Estimate for 2023 earnings has moved 10% upward over the past 30 days and is pegged at $19.82 per share. It suggests growth of 43.2% from the year-ago reported figure.
The consensus mark for fiscal 2024 earnings stands at $21.22 per share, indicating a year-over-year improvement of 7%. It has moved up 14% over the past 30 days.
CAT has an estimated long-term earnings growth rate of 12%.
Solid Demand to Aid Top-Line Growth
In North America, demand in the residential and non-residential construction sectors is likely to bolster demand for Caterpillar’s construction equipment. The stepped-up investment in roads, bridges, airports and waterways, as a result of 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, auguring well for the Resource Industries segment. Miners are increasingly relying on autonomous systems to enhance productivity, and reduce costs and emissions. Therefore, Caterpillar is enhancing its autonomous capabilities and bringing innovative products to the market. In the Energy & Transportation segment, strong order rates in most applications are expected to support revenues.
Strong Balance Sheet
Its cash and liquidity position remains strong, with the company generating an operating cash flow of $4.8 billion in the first half of 2023. Cash and short-term investments were $7.4 billion as of Jun 30, 2023. ME&T debt stood at $8.5 billion. Its times interest earned ratio has improved substantially over the years and is currently 9.5.
Caterpillar’s board of directors had approved an 8% hike in the quarterly dividend earlier this year. The company has paid higher dividends to shareholders for 29 straight years and is a member of the S&P 500 Dividend Aristocrat Index. Caterpillar’s 1.89% dividend yield is higher than the industry’s yield of 1.87% and the S&P500’s 1.44%. The company has a five-year dividend growth rate of 7.4% and a payout ratio of 27.4%, higher than its industry peers.
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 expanding its offerings and services, and digital initiatives like e-commerce to drive long-term growth.
Price Performance
Shares of Caterpillar have gained 52.9% in the past year compared with the industry’s 52.5% growth.
The Zacks Consensus Estimate for Terex’s 2023 earnings per share is pegged at $1.61. Estimates were unchanged in the last 60 days. It has a trailing four-quarter average earnings surprise of 27.1%. TEX has gained 83% in the past year.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares have gained 43% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS gained 28% in the last year.
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Reasons to Add Caterpillar (CAT) Stock to Your Portfolio Now
Caterpillar Inc. (CAT - Free Report) has been benefiting from improving demand in its end markets and cost-control efforts which are reflected in its 10-quarter stint of year-over-year revenue and earnings growth. This is impressive considering the inflationary pressures and supply-chain snarls faced by the company as well as the industry at large.
CAT’s solid backlog and upbeat outlook for its segments position it well for improved results in the forthcoming quarters as well. The company’s ongoing investments in its expanded offerings, services and digital initiatives are expected to contribute to growth.
Caterpillar currently sports a Zacks Rank #1 (Strong Buy).
Let’s delve deeper and analyze the factors that make this stock a solid pick right now.
Solid Q2 Results & Robust Backlog Levels: Caterpillar’s adjusted earnings per share were $5.55 in second-quarter 2023, which marked a 74.5% year-over-year improvement. Strong demand across most of its end markets and favorable price realization led to improved earnings despite unfavorable manufacturing costs in the quarter.
The backlog at the end of the quarter was an impressive $30.7 billion. This bodes well for CAT’s top-line performance in the quarters ahead.
Positive Earnings Surprise History: Caterpillar has an average earnings surprise of 18.5% in the trailing four quarters.
Upbeat Growth Projections: The Zacks Consensus Estimate for 2023 earnings has moved 10% upward over the past 30 days and is pegged at $19.82 per share. It suggests growth of 43.2% from the year-ago reported figure.
The consensus mark for fiscal 2024 earnings stands at $21.22 per share, indicating a year-over-year improvement of 7%. It has moved up 14% over the past 30 days.
CAT has an estimated long-term earnings growth rate of 12%.
Solid Demand to Aid Top-Line Growth
In North America, demand in the residential and non-residential construction sectors is likely to bolster demand for Caterpillar’s construction equipment. The stepped-up investment in roads, bridges, airports and waterways, as a result of 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, auguring well for the Resource Industries segment. Miners are increasingly relying on autonomous systems to enhance productivity, and reduce costs and emissions. Therefore, Caterpillar is enhancing its autonomous capabilities and bringing innovative products to the market. In the Energy & Transportation segment, strong order rates in most applications are expected to support revenues.
Strong Balance Sheet
Its cash and liquidity position remains strong, with the company generating an operating cash flow of $4.8 billion in the first half of 2023. Cash and short-term investments were $7.4 billion as of Jun 30, 2023. ME&T debt stood at $8.5 billion. Its times interest earned ratio has improved substantially over the years and is currently 9.5.
Caterpillar’s board of directors had approved an 8% hike in the quarterly dividend earlier this year. The company has paid higher dividends to shareholders for 29 straight years and is a member of the S&P 500 Dividend Aristocrat Index. Caterpillar’s 1.89% dividend yield is higher than the industry’s yield of 1.87% and the S&P500’s 1.44%. The company has a five-year dividend growth rate of 7.4% and a payout ratio of 27.4%, higher than its industry peers.
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 expanding its offerings and services, and digital initiatives like e-commerce to drive long-term growth.
Price Performance
Shares of Caterpillar have gained 52.9% in the past year compared with the industry’s 52.5% growth.
Image Source: Zacks Investment Research
Other Stocks to Consider
Some other top-ranked stocks from the Industrial Products sector are Terex Corporation (TEX - Free Report) , Astec Industries, Inc. (ASTE - Free Report) and A. O. Smith Corporation (AOS - Free Report) . CAT and ASTE sport a Zacks Rank #1 (Strong Buy) at present, and AOS has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Terex’s 2023 earnings per share is pegged at $1.61. Estimates were unchanged in the last 60 days. It has a trailing four-quarter average earnings surprise of 27.1%. TEX has gained 83% in the past year.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares have gained 43% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS gained 28% in the last year.