Despite extended weakness in the broader market, shares of construction and mining equipment manufacturer Caterpillar, Inc. (CAT) has gained 38.9% over the past six months. Moreover, it has gained 10.7% over the past year. The stock hit a new 52-week high of $245.05 on December 27, 2022.

The company delivered double-digit top-line growth in the third quarter of fiscal 2022. CAT reported sales of $15 billion, a 21% increase year-over-year. The increase was primarily driven by favorable price realization and higher sales volume. Also, its adjusted profit per share was $3.95, compared to $2.66 in the prior-year quarter.

CAT’s Chairman and CEO, Jim Umpleby, said, “Our team remains focused on serving our customers as we continued to see healthy demand across most of our end markets during the third quarter.”

During the third quarter, the company returned approximately $2 billion to shareholders through share repurchases and dividends. On December 14, CAT’s Board of Directors announced a quarterly dividend of $1.20 per share of common stock, payable on February 17, 2023.

The company has been paying quarterly dividends since 1933. CAT’s annual dividend of $4.80 yields 2.99% on the current share price. Its dividend payouts have increased at a 6.9% CAGR over the past three years and an 8.3% CAGR over the past five years.

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

Positive Recent Developments

On December 15, CAT collaborated with Luck Stone, the nation’s leading family-owned and operated producer of crushed stone, sand, and gravel, to deploy CAT’s autonomous solution to Luck Stone’s Bull Run Plant in Chantilly, Virginia.

This marks Caterpillar’s first autonomous deployment in the aggregates industry and is expected to expand the company’s autonomous truck fleet to include the 100-ton-class Cat® 777.

Also, on November 22, CAT announced a successful demonstration of its first battery electric 793 large mining truck and declared a significant investment to transform its Arizona-based proving ground into a sustainable testing and validation hub.

Solid Financials

For the fiscal 2022 third quarter ended September 30, CAT’s total sales and revenues increased 21% year-over-year to $15 billion. The company’s operating profit came in at $2.43 billion, up 45.7% from the prior-year period. Its profit rose 43.1% from the prior-year quarter to $2.04 billion. In addition, its adjusted profit per share grew 48.5% year-over-year to $3.95.

Favorable Analyst Expectations

Analysts expect the CAT’s revenue for the fiscal year (ending December 2022) to increase 14.9% year-over-year to $58.54 billion. The consensus EPS estimate of $13.91 for the current year indicates a 28.7% year-over-year increase. 

Moreover, the company has an impressive surprise earnings history, as it has topped the consensus EPS estimates in each of the trailing four quarters.

Furthermore, the company’s revenue and EPS for the next fiscal year (ending December 2023) are expected to grow 6.1% and 8.4% year-over-year to $62.13 billion and $15.08, respectively.

High Profitability

CAT’s trailing-12-month EBITDA margin of 19.69% is 48.4% higher than the 13.27% industry average. And its trailing-12-month net income margin of 13.02% compares with the industry average of 6.75%. Moreover, the stock’s trailing-12-month levered FCF margin of 13% is 282.1% higher than the 3.4% industry average.

In addition, CAT’s trailing-12-month ROCE, ROTC, and ROTA of 45.70%, 10.64%, and 9.11% compare to the industry averages of 14.24%, 6.76%, and 5.31%, respectively.

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.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CAT has a grade of B for Sentiment, consistent with optimistic analyst estimates.

In the 79-stock Industrial – Machinery industry, it is ranked #14. The industry is rated B.

Click here to see the additional POWR Ratings for CAT (Growth, Momentum, Value, Stability, and Quality). View all the top stocks in the Industrial - Machinery industry here.

Bottom Line

Despite macro headwinds and supply chain concerns, CAT delivered solid top-line growth in its last reported quarter. The construction equipment manufacturer is well-positioned to benefit from high demand across its end markets and increased infrastructure spending across the nation. The bipartisan infrastructure bill that went into effect about a year ago continues to boost the company’s performance.

Moreover, CAT has paid increasing annual dividends to shareholders for 29 consecutive years. Considering its stable bottom line, solid growth prospects, robust profitability, and high-yield dividend, the stock could be an ideal 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 with an overall A (Strong Buy) rating, Komatsu Ltd. (KMTUY), THK CO., LTD. (THKLY), and Powell Industries, Inc. (POWL).

CAT shares rose $0.64 (+0.27%) in premarket trading Thursday. Year-to-date, CAT has gained 0.75%, versus a 0.35% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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