Company Reports

We've raised our fair value estimate for wide-moat Caterpillar to $245 per share from $232. About half of the increase was attributable to the time value of money since our last update. We also made tweaks to our near-term sales and margin expectations. We now forecast machinery sales to increase 3% in 2024 before rising by a mid-single-digit percentage during 2025-28.

We believe Caterpillar will continue to be the leader in the global heavy machinery market with an extensive portfolio of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. The strong brand is underpinned by high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

Caterpillar reported solid fourth-quarter earnings, leading us to raise our fair value estimate by 1% to $232 per share (up from $229 previously). The change in our fair value was mainly due to slight upward tweaks to our near-term sales and margin expectations. We maintain our overvalued assessment, as the market looks to be fully baking in the infrastructure opportunity for Caterpillar.

We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

The market sent Caterpillar’s shares down approximately 6% in intraday trading on Oct. 31, following third-quarter earnings. The key headline coming out of earnings was the company’s declining order backlog. Caterpillar reported orders decreased $2.6 billion in the third quarter versus last quarter.

We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

Solid demand and improving dealer inventories led Caterpillar to post strong second-quarter earnings. The company's stock was up nearly 9% in intraday trading, as Caterpillar outperformed consensus sales and earnings per share estimates for the quarter. The strong quarter pushed us to raise our fair value by 7% to $223. Our fair value raise was mostly attributable to our stronger near-term expectations for both sales and operating margins. We expect Caterpillar's top line to grow by 15% in 2023, while operating margins expand by nearly 250 basis points.

We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

We’re maintaining our $209 fair value estimate for Caterpillar, following first-quarter earnings. We saw no surprises in the earnings print. Demand still looks healthy, given end user demand has held up well in recent quarters. The company reported good machinery sales growth across its segments, leading to 17% year on year growth on a consolidated basis. Operating margins also came in at solid levels, expanding by 400 basis points to 17.3%. The company has been effective at raising prices to respond to cost inflation.

We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

Caterpillar reported solid fourth-quarter results to close out 2022. The company’s machinery sales grew 21% year on year to $15.8 billion, thanks to stronger pricing and increased sales volume. Retail sales (to end users) of machines were up 4% year on year globally, with North America (up 13% year on year) being the biggest contributor to growth in the quarter. Notably, retail was up sequentially compared with the third quarter of 2022, showing Caterpillar’s increased ability to meet the demand from end users. That said, we’re not expecting much uplift from the dealer channel this year, as funding for infrastructure has still not flowed through to U.S. states. In the quarter, Caterpillar noted that dealer inventories increased $700 million sequentially compared with the third quarter. If we compare this to the same period a year ago, we see a $800 million favorable impact on total sales. We'd like to see this number cross over a billion dollars in the medium term.

We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

Caterpillar’s stronger-than-expected results led us to increase our fair value estimate to $196 per share from $193. The company increased equipment sales 22% year on year to $14.2 billion. The key drivers were strong pricing and solid volume gains. Caterpillar has flexed pricing to mitigate supply chain constraints. Headwinds included material and freight costs, as well as manufacturing inefficiencies. We expect supply chain challenges to remain persistent throughout 2022 and likely into early 2023.

We think Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

We think Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

We continue to remain positive on the demand story for Caterpillar, despite supply headwinds. The company has been pressured by the chip shortage and higher manufacturing costs over the past year, challenging its ability to meet current demand. However, we believe construction activity will continue to improve in the near term, giving us confidence that Caterpillar’s products will see strong demand from customers over our forecast. In addition, we think the construction industry will benefit from increased U.S. infrastructure spending starting in 2023. Given this backdrop, we've raised our fair value estimate to $193 per share from $189.

We think Caterpillar will continue to be the leader in the global heavy machinery market, providing customers an extensive product portfolio consisting of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. Caterpillar’s strong brand is underpinned by its high-quality, extremely reliable, and efficient products. Customers also value Caterpillar’s ability to lower the total cost of ownership.

Caterpillar held its investor day on May 17, where it reiterated its 2019 investor day targets for operating margins, free cash flow, and services. Following the event, we raised our fair value estimate to $189 from $187 previously to reflect minor adjustments to our near-term margin expectations.