Caterpillar (CAT) Earnings Expectations - Buy or Sell?

Caterpillar Inc. (CAT), a leading construction and mining equipment manufacturer, will announce its earnings for the third quarter tomorrow. The company has consistently shown robust growth, surpassing expectations in its second-quarter results.

A supposed aspect of CAT’s financial success has been the surge in infrastructure spending compelled by President Biden’s $1 trillion infrastructure package. For instance, in the second quarter, the company registered total sales and revenue totaling $17.32 billion, significantly exceeding the projected figure of $16.49 billion. Additionally, its adjusted profit per share stood at $5.55, outpacing the forecasted $4.58.

As we approach the disclosure of the third-quarter earnings, analysts predict an EPS increase of 21.3% year-over-year at $4.79. The anticipated revenue of $16.56 billion also implies a considerable improvement of 10.5% compared to the same period last year.

With these promising projections in perspective, it's insightful to examine the trends of Caterpillar's critical financial metrics and distinguish why an investment in its shares might prove to be a prudent decision at this time.

Analyzing Financial Trajectory: Caterpillar Inc.'s Performance (2020 - 2023)

The trailing-12-month net income trend and fluctuations for CAT over the identified period exhibit a generally increasing trajectory, with certain intervals of more pronounced fluctuations.

• On December 31, 2020, CAT reported a net income of $2.99 billion.
• The first quarter of 2021 marked an increase to $3.44 billion by March 31.
• Consistent growth continued into the second quarter, with an end value of $4.39 billion on June 30, 2021.
• By the end of the third quarter on September 30, 2021, the company's net income had grown further to $5.15 billion.
• This growth trend sustained through the close of 2021, with a significant increase to $6.49 billion by December 31.
• Entering 2022, the net income showed little change in the first quarter, closing marginally higher at $6.50 billion on March 31.
• In the second quarter of 2022, the upward trajectory resumed, with the net income reaching $6.76 billion on June 30.
• CAT's net income accelerated further to $7.37 billion by September 30, marking the peak value for the period.
• However, the last quarter of 2022 witnessed a slight decline, with the net income dropping to $6.70 billion on December 31.
• Into 2023, recovery was observed, with the net income rebounding to $7.11 billion by the end of the first quarter on March 31.
• As of the most recent data point on June 30, 2023, the net income reached an impressive high of $8.36 billion.

Overall, comparing the net income of $2.99 billion in December 2020 to the $8.36 billion reported in June 2023, a substantial growth rate is evident over this period of approximately two and a half years. This underscores a strong financial performance for CAT despite occasional fluctuations.

The data series shows that CAT has been experiencing a steady increase in trailing-12-month revenue over the reported period, from December 2020 to June 2023:

• By the end of December 2020, the revenue stood at $41.75 billion.
• The revenue grew slightly to reach $43.00 billion by the end of the first quarter of 2021.
• By the end of June 2021, this number had further increased to $45.89 billion.
• After a steady climb, the revenue had grown to $48.41 billion by September 2021.
• The year 2021 was concluded with a solid revenue figure of $50.97 billion as of December 31.

Entering the year 2022, CAT's revenue continued on an upward trend:

• The company started the year with revenue recording $52.67 billion in March.
• Halfway through 2022, the revenue was noted to have increased further to $54.03 billion in June.
• In September, another hike witnessed the revenue escalating to $56.63 billion.
• Ending 2022 on a high note, December saw a robust revenue report of $59.43 billion.

Thereafter, the upward trajectory was sustained into 2023:

• The first quarter, ending in March, saw revenue reaching $61.70 billion.
• Successfully continuing the growth trend, the last recorded value for revenue in June 2023 stood at $64.77 billion.

Significantly, stacking the first reported figure ($41.75 billion as of December 2020) against the last ($64.77 billion as of June 2023) indicates a positive growth of approximately 55.1% over the period. The past data thus suggests a strong upward trend in revenue for CAT, with an emphasis on the most recent increase in the series.

The asset turnover of CAT has shown an increasing trend in the past three years (2020-2023). Here are some significant periods:

• On December 31, 2020, the asset turnover stood at 0.54.
• By March 31, 2021, there was a slight increase, with the figure reaching 0.55.
• In the following months, the asset turnover gradually increased, reaching 0.60 by September 30, 2021.
• At the end of 2021, on December 31, the asset turnover of CAT was 0.63.
• In 2022, the data shows a consistent rise across all quarters, peaking at 0.69 on September 30 and reaching 0.73 by the year-end on December 31.
• The upward trend continued into 2023, with asset turnover hitting 0.75 on March 31 and eventually reaching 0.78 by June 30, marking the end of the reporting period.

Looking at the overall picture, the growth rate from December 31, 2020, to June 30, 2023, is approximately 44%. This means that the asset turnover improved significantly during this period, indicating that the company's assets were used more effectively to generate revenue.

The analyst price target of CAT, as reported from November 2021 through October 2023, exhibits both a trend and fluctuations. Below are the key points visualizing its journey over two years.

• The price target started at $238 in November 2021 and gradually increased, reaching a peak of $245 by April 2022.
• However, there was a noticeable decrease to $222 during August 2022 - a downward trend that lasted for about two months.
• It began to climb again, hitting $230 by December 2022 and remaining steady until late January 2023.
• Thereafter, it experienced considerable volatility, from a high of $260 in February 2023, then dropping to $245 in May, before increasing steadily again, reaching $282 by August 2023, where it mainly remained steady.
• Finally, it took an upward leap to $285 by October 2023 - the highest recorded value in the series.

Given this data, we observe a general growth rate of approximately 20%, calculated by comparing the last recorded value ($285) with the initial starting value ($238). However, it's worth noting the fluctuations throughout the period, especially the distinct dip around mid-2022 and the substantial increase in late 2023. The emphasis on more recent data shows a trend of growth in CAT's analyst price target as of October 2023.

Tracking Caterpillar Inc.'s Stock Performance: A Turbulent Rise and Retreat in 2023

Reviewing the provided data, it's evident that CAT's share price experienced significant growth and fluctuation during the period from May to October 2023. Here is a succinct breakdown:

• On May 5, 2023, CAT started at a share price of $214.13.
• The share price saw a slight decrease in May, settling at $211.79 by May 26, 2023.
• In June 2023, the price began to rebound, climbing sharply to reach $244.03 by June 16. This represents a substantial increase of approximately 15% within just two weeks.
• Despite slight fluctuations, the rising trend continues through July, with the price topping out at $260.39 by July 21, 2023.
• In August 2023, CAT achieved its highest share price at $282.92 on August 11. However, it experienced its first significant dip in the last week of the month to settle at $271.57.
• September 2023 saw another rise and fall, peaking early at $282.04 before gradually declining to $273.18 by the end of the month.
• In October 2023, CAT’s price continued to decline, suggesting a decelerating growth rate compared to earlier months. It ended on October 27 with a markedly lower share price of $238.56.

In summary, the share prices for CAT throughout this period displayed a volatile, though largely positive trajectory, reaching its peak in August and subsequently receding into October. The growth rate, while initially accelerating through mid-year, seemed to indicate a subtle deceleration as it moved into the final quarter of 2023. Here is a chart of CAT's price over the past 180 days.

Analyzing Momentum, Growth, and Sentiment Trends for Caterpillar Inc. (May-October 2023)

The POWR Ratings Grade of CAT falls under the Industrial - Machinery category of stocks and has seen some fluctuations over the given period. Notable Changes:

• The company consistently maintained a POWR Grade of A (Strong Buy) from May 6, 2023, to August 9, 2023.
• There was a drop to a POWR grade of B (Buy) on August 19, 2023, but it quickly bounced back to A (Strong Buy) on August 26, 2023.
• The POWR grade again dropped to B (Buy) for the week starting September 2, 2023, and fluctuated between B (Buy) and A (Strong Buy) until October 21, 2023, when it picked back up to A (Strong Buy).

Rank in Category:

• CAT solidly stayed within the top 10 ranks of its category from May 6, 2023, to July 29, 2023.
• Despite minor rank drops, the company still managed to stay within the first 15 positions of its category throughout the given period, an excellent performance considering the total 78 stocks in the category.

As of October 30, 2023, CAT held a POWR Grade of A (Strong Buy) and a rank of #7 in its category. This suggests a strong performance in its category relative to other industrial machinery stocks.

The three most noteworthy POWR Ratings dimensions for CAT during the period from May to October 2023 were Momentum, Growth, and Sentiment. These dimensions were consistently higher compared to other dimensions throughout the period. 

Momentum

• The Momentum dimension was the highest-rated component for CAT during this period. In May 2023, Momentum was rated at 91 and grew to its peak value of 94 in June 2023. Afterward, a deceleration trend can be seen, with the rating decreasing every month until it reached 83 in October 2023.

Growth

• The Growth dimension initially showed an upward trend, with a slight increase from 82 in May 2023 to 83 in June 2023 and remaining steady through July 2023. However, there was a gradual decrease over the subsequent months, reaching a rate of 77 by October 2023.

Sentiment

• The Sentiment dimension demonstrated some fluctuation over the period. It started at 83 in May 2023, dipped to 75 in June, then peaked at 86 in July 2023. Afterward, a downward trend is visible, with the rating decreasing consistently to reach a low of 69 by October 2023.

Please note that all changes are depicted on a monthly basis.

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

Other stocks in the Industrial - Machinery sector that may be worth considering are Tennant Company (TNC), Twin Disc, Incorporated (TWIN), and Komatsu Ltd. (KMTUY) – they also have an A (Strong Buy) POWR Ratings Grade. Click here to explore more stocks in the Industrial - Machinery sector.

What To Do Next?

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CAT shares were trading at $241.59 per share on Monday afternoon, up $3.03 (+1.27%). Year-to-date, CAT has gained 2.91%, versus a 9.13% rise in the benchmark S&P 500 index during the same period.

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.

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