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Caterpillar (CAT) is back on many investors’ radars after a strong share price move over the past month, with the stock up about 21%, and roughly 36% over the past 3 months.
See our latest analysis for Caterpillar.
The recent 21.2% 1 month share price return and 35.8% 3 month share price return sit within a much stronger backdrop, with Caterpillar posting a 1 year total shareholder return of 126.5% and a 5 year total shareholder return of 285.9%. That kind of long run compounding, alongside a recent pullback over the past week, suggests that investors have been steadily reassessing both the company’s growth potential and perceived risk, rather than reacting to a single headline.
If Caterpillar’s move has you thinking about where capital could work next in heavy industry and infrastructure, it may be worth scanning 23 power grid technology and infrastructure stocks as another angle on this theme.
After such strong recent gains and long term compounding, the key question now is whether Caterpillar’s current price still offers value or if the market is already baking in years of future growth.
Caterpillar closed at $759.74, while the most followed narrative, using a $338.56 fair value and a 7% discount rate, points to a very different starting point.
I am extending my forward value to 2029 and maintaining it around $192B or $432 per share. CAT reported sales of $16.1B in Q3’24, a 4% decline YoY. The top-line was lower than management’s previous forecasts. This was primarily driven by lower volume sales of equipment in construction and the resource industries segment. Geographic weakness was pervasive across the board, with the largest dollar-value drop coming from the U.S. and Europe. The energy & transportation segment held up, with most of the growth being attributable to price increases. CAT is underperforming my 4% annual revenue growth estimates, however I maintain that the company will be able to cycle out of the drawdown and reach my 2028 target of $79B. On the profitability side CAT reached a quarterly net income of $2.46B, which translates to a TTM net income of $10.7B. This represents a 16.3% margin in the last 12 months, higher than my 12% target. Given that these profit margins are hovering around 10-year highs, I will monitor to see if CAT manages to sustain the elevated margins and change my forecasts accordingly should they prove resilient.