CAT stock hits 52-week high. Is it a buy?

Construction equipment maker Caterpillar (CAT) posted solid sales growth in its last reported quarter. The company’s growth prospects look bright, thanks to healthy demand and increased federal infrastructure spending. The stock recently reached its 52-week high and outperformed the broader market by gaining more than 35% over the past six months. Given the macro headwinds and supply concerns, let’s see if CAT is now a wise investment. Keep reading….

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Despite the long-standing weakness in the broader market, shares of construction and mining equipment maker Caterpillar, Inc. (CAT) is up 38.9% over the past six months. Plus, it’s up 10.7% over the past year. The stock reached a new 52-week high of $245.05 on December 27, 2022.

The company posted double-digit revenue growth in the third quarter of fiscal 2022. CAT reported revenue of $15 billion, up 21% year-over-year. The increase was mainly due to a favorable price realization and a higher sales volume. Also, adjusted earnings per share were $3.95, compared to $2.66 in the same quarter last year.

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

During the third quarter, the company returned approximately $2 billion to shareholders through share buybacks and dividends. On December 14, the CAT Board of Directors announced a quarterly dividend of $1.20 per common share, payable 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. Dividend payments 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 can affect CAT performance in the short term:

Positive recent developments

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

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

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

Solid finances

For the fiscal third quarter of 2022, ending September 30, CAT’s total sales and revenues grew 21% year over year to $15 billion. The company’s operating profit came in at $2.43 billion, up 45.7% from the same period last year. Earnings rose 43.1% from the same quarter last year to $2.04 billion. In addition, adjusted earnings 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 grow 14.9% year over year to $58.54 billion. The consensus earnings per share estimate of $13.91 for the current year indicates a 28.7% year-over-year increase.

In addition, the company has an impressive history of surprise earnings, as it beat consensus earnings per share estimates in each of the following four quarters.

In addition, the company’s revenue and earnings per share 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 $62.13 billion, respectively. 15.08.

High profitability

CAT’s backlog of 12 months EBITDA margin of 19.69%, 48.4% is higher than the industry average of 13.27%. And the net income margin over the last 12 months of 13.02% is comparable to the industry average of 6.75%. In addition, the stock’s 12-month leveraged FCF margin of 13% is 282.1% higher than the industry average of 3.4%.

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

POWR ratings reflect promising outlook

CAT’s strong foundations are reflected in its POWR ratings. The stock has an overall rating of B, which is equivalent to buy in our proprietary rating system. The POWR ratings are calculated by considering 118 different factors, with each factor optimally weighted.

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

In the 79 stock Industrial machines industry, it ranks at number 14. The industry is rated B.

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

It boils down

Despite macroeconomic headwinds and supply chain concerns, CAT posted solid revenue growth in its last reported quarter. The construction equipment maker is well positioned to benefit from strong demand in its end markets and higher infrastructure spending across the country. The bipartisan infrastructure law which came into effect about a year ago, the company’s performance continues to improve.

In addition, CAT has paid increasing annual dividends to shareholders for 29 consecutive years. Given its stable earnings, solid growth prospects, robust profitability and high-yield dividend, the stock could be an ideal buy now.

How does Caterpillar Inc. (CAT) turns to its competitors?

While CAT has an overall POWR rating of B, one might consider looking at industry peers with an overall A rating (Strong Buy), Komatsu Ltd. (KMTUY), THK CO., LTD. (THKLY), and Powell Industries, Inc. (POWL).

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

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About the author: Mangeet Kaur Bouns

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

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