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Caterpillar (CAT) Stock Hits All-Time High: Should You Buy?

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Caterpillar’s (CAT - Free Report) machines are arguably the most recognizable in the industry and can be easily spotted from highway construction projects to massive industrial mining sites. Omnipresent and wide-ranging in their utility, the company’s manufacturing tools, as well as a massive restructuring initiative, have helped send shares of Caterpillar soaring over the last year.

The company’s hot streak seems poised to continue, as Wall Street’s faith in Caterpillar has only grown. On Monday, Caterpillar stock hit yet another new all-time high after the company received a notable upgrade.

UBS Financial Services raised its Caterpillar rating from “Neutral” to “Buy.” The firm cited positive findings from its survey of future spending plans of 50 mining companies as a big reason for the new “Buy” rating. UBS found that 60% of firms expect to spend more next year on new mining equipment.

"Our UBS Evidence Lab Macro analysis suggests a re-acceleration of US private construction activity, and our UBS Evidence Lab survey indicates that mining capex should continue to improve in 2018," UBS analyst Steven Fisher wrote in a note to clients.

The analyst also upped his Caterpillar price target to $140 a share from $116 per share, which marks a 15% upside from Friday's close. Fisher also raised his 2018 Caterpillar earnings per share estimate to $7.50 from $5.90.

With shares of Caterpillar hitting a brand new high on Monday, let’s take a look at some of Caterpillar’s fundamentals to see if investors have a reason to buy, despite its stock resting at the very top of a year-long run.

Fundamental Outlook

Caterpillar is currently a Zacks Rank #1 (Strong Buy) and is categorized as a “Manufacturing – Construction and Mining” industry company. This industry sits in the top 2% of the 265 different industries tracked and ranked by Zacks.

The construction and mining equipment giant sports a “B” grade for both Growth and Momentum in our Style Scores system. Caterpillar’s “C” for Value represents its lowest grade, but the company still scored an overall VGM score of “B”.

Caterpillar boasts a projected full-year EPS growth rate of 52.60%, which is well above the industry average of just over 41%. The company’s return on equity, which sits at an impressive 18.52%, is much higher than the Construction and Mining average of 7.40%.

In terms of Momentum, Caterpillar’s 52-week price change of 47.96% actually comes in well below the industry average of 71.17%. Therefore, Caterpillar’s strong 2017 run could climb higher in an industry that has experienced eye-catching growth.

The company earned its “C” Value grade in part because Caterpillar’s projected earnings yield matches the industry average of 4.33%. Caterpillar’s price to cash flow ratio of 12.62 also hovers right around the industry’s 12.88 average.

Revenue Growth and Earnings Estimate Revisions

Caterpillar sales are projected to jump more than 15% this quarter to hit between $10.38 billion and $10.92 billion. The company’s revenues are expected climb 11.07% overall this year and pop another 8.12% in 2018.

The most recent Zacks Consensus Estimate puts Caterpillar’s current-quarter EPS projection at $1.20. Our full-year and 2018 estimates call for earnings of $5.20 a share and $6.54 a share, respectively.

As some readers might already know, the Zacks Rank is determined, in large part, by earnings estimate revisions. Therefore, Caterpillar’s #1 (Strong Buy) rank stems from a positive trend in this important indicator. 

Caterpillar has received seven positive quarterly earnings estimate revisions in the last 60 days. Within that same timeframe, Caterpillar’s stock also earned seven upward revisions for its next quarter, as well as nine for this year and the following year.

Bottom Line

Zacks firmly believes that positive earnings estimate revisions are one of the best indications that a company’s stock price is set to perform well in the future. It seems clear some analysts are convinced that, despite hitting a new all-time high of $124.37 per share on Monday, Caterpillar’s stock is poised to see further gains.

Caterpillar’s projected gains could climb even higher if President Donald Trump’s pro-growth infrastructure agenda becomes a reality. But for now, Caterpillar’s current metrics led to its Zacks Rank #1 (Strong Buy) standing, and even if new top-down infrastructure and growth initiatives aren’t made, the Illinois-based company seems to be a stock that investors might want to consider.

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