Caterpillar Inc. (CAT) engages in the manufacturing and selling of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates through the broad segments of Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.

The supply chain hindrances caused by the global pandemic have hampered the optimal productivity of many industrial companies like CAT. Moreover, the four-decade high inflation is expected to keep the companies in this space under pressure.

However, experts believe that the supply chains are healing lately. The New York Federal Reserve’s Global Supply Chain Pressure Index (GSCPI) is down from its December 2021 highs.

Over the past year, CAT’s stock has slumped 11%. It has declined 10.3% year-to-date. However, it has gained 2.8% over the past month and almost 1% intraday to close its last trading session at $185.39.

Here are the factors that could affect CAT’s performance in the near term:

Dividend Increase

In June, CAT announced a nine cents or 8% increase in its dividend to $1.20 per share of common stock, payable to shareholders on August 19. CAT Chairman and CEO Jim Umpleby said, “Our dividend increase reflects our strong balance sheet and liquidity position as well as confidence in continued strong free cash flow generation from Machinery, Energy & Transportation (ME&T).”

The company’s annual dividend of $4.80 yields 2.59% on prevailing prices. CAT’s dividend payouts have increased at a 7.9% CAGR over the past three years and an 8% CAGR over the past three years. The company has had seven years of consecutive dividend growth.

Solid Bottom Line

For the fiscal second quarter ended June 30, CAT’s total sales and revenues increased 10.5% year-over-year to $14.25 billion. Profit rose 18.4% from the prior-year quarter to $1.67 billion. Adjusted profit per share improved 22.3% from the same period the prior year to $3.18. Operating profit came in at $1.94 billion, up 8.7% from the prior-year period.

Favorable Analyst Expectations

The consensus EPS estimate of $3.19 for the fiscal quarter ending September 2022 indicates a 19.9% year-over-year increase. Moreover, CAT has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.

Street EPS estimate for the fiscal year 2022 of $12.53 reflects a rise of 15.9% from the prior year. Likewise, Street revenue estimate for the same year of $57.38 billion indicates a 12.6% year-over-year improvement. EPS is expected to increase 11.8% per annum over the next five years.

Impressive Profit Margins

CAT’s trailing-12-month EBITDA margin and net income margin of 19.42% and 12.50% are 49.6% and 83.5% higher than their respective industry averages of 12.98% and 6.81%.

The stock’s trailing-12-month ROE, ROTC, and ROA of 41.50%, 9.66%, and 8.33% are 179.4%, 43%, and 62% higher than the respective industry averages of 14.85%, 6.76%, and 5.14%.

POWR Ratings Reflect Promising Prospects

CAT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CAT has a Value grade of B. This is justified by its forward non-GAAP PEG multiple of 0.78, which is 46% lower than the industry average of 1.44.

CAT has a C grade for Stability in sync with its five-year monthly beta of 1.00.

In the 79-stock Industrial – Machinery industry, it is ranked #21. The industry is rated B.

Click here to see the additional POWR Ratings for CAT (Growth, Momentum, Sentiment, and Quality).

View all the top stocks in the Industrial – Machinery industry here.

Bottom Line

The persistent supply chain bottlenecks have disrupted production capabilities over the past two years. However, experts believe the issues will ease in the future. Despite the challenges, CAT has increased its common stock dividend, underscoring a strong cash position. Also, considering its stable bottom line positioning, I think the stock might be a buy now.

How Does Caterpillar Inc. (CAT) Stack Up Against its Peers?

While CAT has an overall POWR Rating of B, one might consider looking at its industry peers, Cummins Inc. (CMI) and Tennant Company (TNC), which have an overall A (Strong Buy) rating.

CAT shares were trading at $187.05 per share on Monday morning, up $1.66 (+0.90%). Year-to-date, CAT has declined -8.01%, versus a -11.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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