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Caterpillar (CAT) Bets on Improving Demand Amid High Costs
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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 eleven-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 and the industry at large through this period.
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 carries a Zacks Rank #3 (Hold).
Price Performance
Shares of Caterpillar have gained 22.1% in the past six months compared with the industry’s 19.8% growth.
Image Source: Zacks Investment Research
Robust Backlog Levels Bode Well
Caterpillar reported adjusted earnings per share of $5.52 in the third quarter of 2023, which marked a 39.7% year-over-year improvement. Despite unfavorable costs, higher sales volumes in the Energy & Transportation and Construction Industries segments, and favorable price realization led to the improvement in earnings.
The backlog at the end of the quarter was a healthy $28.1 billion. This bodes well for CAT’s top-line performance in the quarters ahead.
The Zacks Consensus Estimate for 2023 earnings is pegged at $20.58 per share, which suggests growth of 48.7% from the year-ago reported figure. The consensus mark for fiscal 2024 earnings is $20.68 per share, indicating a year-over-year improvement of 0.5%.
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
Caterpillar's cash and liquidity position remains strong, which enables it to invest in growth while returning cash to shareholders. The company generated an operating cash flow of $8.9 billion in the first nine months of 2023 and ended the period with cash and short-term investments of $6.5 billion. Its times interest earned ratio has improved substantially over the years and is currently 9.3.
CAT's 1.74% dividend yield is higher than the sector’s yield of 1.43% and the S&P500’s 1.37%. The company has a five-year dividend growth rate of 7.5% and a payout ratio of 25.2%, higher than its industry peers. 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 its full ME&T free cash flow to 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 expanding its offerings and services, as well as digital initiatives like e-commerce, to drive long-term growth.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Resideo Technologies, Inc. (REZI - Free Report) , Applied Industrial Technologies (AIT - Free Report) and A. O. Smith Corporation (AOS - Free Report) .
The Zacks Consensus Estimate for Resideo Technologies’ 2023 earnings per share is pegged at $1.48. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 5.7%. REZI shares have gained 7% in the past six months.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have gained 21% in the past six months.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares gained 13.5% in the last six months.
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Caterpillar (CAT) Bets on Improving Demand Amid High Costs
Caterpillar Inc. (CAT - Free Report) has been benefiting from improving demand in its end markets and cost-control efforts, which are reflected in its eleven-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 and the industry at large through this period.
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 carries a Zacks Rank #3 (Hold).
Price Performance
Shares of Caterpillar have gained 22.1% in the past six months compared with the industry’s 19.8% growth.
Image Source: Zacks Investment Research
Robust Backlog Levels Bode Well
Caterpillar reported adjusted earnings per share of $5.52 in the third quarter of 2023, which marked a 39.7% year-over-year improvement. Despite unfavorable costs, higher sales volumes in the Energy & Transportation and Construction Industries segments, and favorable price realization led to the improvement in earnings.
The backlog at the end of the quarter was a healthy $28.1 billion. This bodes well for CAT’s top-line performance in the quarters ahead.
The Zacks Consensus Estimate for 2023 earnings is pegged at $20.58 per share, which suggests growth of 48.7% from the year-ago reported figure. The consensus mark for fiscal 2024 earnings is $20.68 per share, indicating a year-over-year improvement of 0.5%.
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
Caterpillar's cash and liquidity position remains strong, which enables it to invest in growth while returning cash to shareholders. The company generated an operating cash flow of $8.9 billion in the first nine months of 2023 and ended the period with cash and short-term investments of $6.5 billion. Its times interest earned ratio has improved substantially over the years and is currently 9.3.
CAT's 1.74% dividend yield is higher than the sector’s yield of 1.43% and the S&P500’s 1.37%. The company has a five-year dividend growth rate of 7.5% and a payout ratio of 25.2%, higher than its industry peers. 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 its full ME&T free cash flow to 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 expanding its offerings and services, as well as digital initiatives like e-commerce, to drive long-term growth.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Resideo Technologies, Inc. (REZI - Free Report) , Applied Industrial Technologies (AIT - Free Report) and A. O. Smith Corporation (AOS - Free Report) .
REZI currently sports a Zacks Rank #1 (Strong Buy), and AIT and AOS carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Resideo Technologies’ 2023 earnings per share is pegged at $1.48. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 5.7%. REZI shares have gained 7% in the past six months.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have gained 21% in the past six months.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares gained 13.5% in the last six months.