Caterpillar (CAT) stock forecast: Drilling its way to strong earnings?
Headquartered in Illinois, US, Caterpillar (CAT) was established in 1925 by industrial pioneers Benjamin Holt and CL Best, who aimed to further the construction equipment manufacturing business.
Today, Caterpillar’s product portfolio has broadened to include off-highway diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.
Caterpillar has extended its business across every continent of the globe. A Fortune 100 corporation, it has three primary business segments: Construction Industries, Natural Resources Industries, and Energy and Transportation.
Through its financial products segment, Caterpillar provides for financing and related services. The company also holds a licence to market its brand of Caterpillar workwear and boots, and since 2012 it has manufactured smartphones under the CAT phone brand name.
The company has a long-standing commitment to sustainability. On 28 January 2022, the company announced it would be providing 10 battery-electric locomotives to Union Pacific Railroad through its wholly owned subsidiary, Progress Rail.
With delivery to be completed by early 2024, these battery-electric locomotives will emit zero exhaust emissions and eliminate reliance on fossil fuels. Jim Umpleby, Caterpillar’s chairman and CEO, said:
On 28 April 2022, Caterpillar released its financial results for the quarter ending 31 March 2022. Driven by a high end-user demand, the company saw a double-digit jump in its top-line numbers to $13.6bn.
Since the start of 2022, however, CAT stock has fallen by 11.83%, from $207 to $182.32 as of 26 July. So what is the future of Caterpillar stock?
Join us as we review the latest stock news and get some analysts’ insights regarding Caterpillar stock projections.
Fundamental analysis
With $13.6bn reported in revenue and sales for Q1 2022, Caterpillar experienced a 14% increase from its Q1 2021 top-line of $11.9bn, reflecting an increase in revenues across its broader business segments of Machinery, Energy and Transport as well as Financial Products. The company said higher sales volumes and favourable price realisations were the primary contributors to this growth.
Construction Industries continued to drive the highest revenue for the company, with a year-over-year (YoY) increase of 12%, from $5.45bn to $6.11bn.
While all geographic regions showed high demand for industrial construction equipment in Q1 2022, China pulled down the broader Asia-Pacific market demand. Reflecting $1.4bn revenues for the Asia-Pacific markets, within the construction industry, the fall in top-line was 21% YoY.
As a result of fresh lockdown measures to combat the recent Omicron strain of Covid-19 in China, factories in the country have remained shut. Approximately 5% to 10% of Caterpillar’s revenues are dependent on China’s product demand.
Umpleby said in a post-earnings call:
Matt Arnold, an analyst for Edward Jones, weighed in on China’s impact on CAT’s future prospects:
A jump in demand and sales was observed across the regions of North America, EMEA and Latin America. Specifically, in North America, increased mining activity drove Q1 2022 sales to $1.01bn, reflecting 55% growth YoY.
Looking at the bottom line for Caterpillar, the operating profit for the company was reported at $1.85bn, a 2.2% increase YoY from $1.81bn. However, the operating profit margin has fallen by nearly 2% from the same period in 2021
From $244m reported in Q1 2021, operating profits fell to $238m in the current results. This was likely due to higher provisions for credit losses related to Russian and Ukrainian reserves, as well as an increase in selling, general and administrative expenses. However, adjusted profit per share was announced at $2.88, slightly higher than the $2.77 reported in Q1 2021.
Recognised as a member of the S&P 500 Dividend Aristocrat Index, Caterpillar has a history of paying cash dividends annually since its initiation. It has paid quarterly dividends since 1993.
On 13 April 2021, the company board voted to maintain its quarterly dividend for Q1 2022 at $1.11 per share of common stock, payable on 20 May 2022 for shareholders on record at the close of business on 25 April 2022.
For Q1 2022, the company made approximately $1.4bn returns to shareholders, comprising $0.8bn of share repurchases and $0.6bn in the form of dividends.
Is Caterpillar a good stock to buy?
Commodity prices saw an increase in March as a result of Russia’s invasion in Ukraine and the resulting geopolitical tensions. Caterpillar’s stock was a beneficiary of increased infrastructure spending, as the CAT stock chart saw a nearly 22% increase in its prices in March alone. Trading at $182.83 on 1 March 2022, the stock closed the month at $222.82.
Amidst rising commodity prices, investors picked up the CAT stock as an inflation hedge in their portfolio. Tami Zakaria, an analyst from JPMorgan, was quoted in a note:
The uptrend would continue into the next month, with CAT reaching a high of $237.61 on 20 April. However, the price corrected to close the month at $211.62. On 16 June it fell below $200 for the first time since the March rally, reaching a low of $193.
At the time of writing on 26 July, CAT had last closed at $181.82, having fallen 3.02% this month.
The Caterpillar Foundation
On 9 March 2022, the construction and mining equipment manufacturer announced it would provide more than $1m in aid for the Ukrainian people through its philanthropic arm, The Caterpillar Foundation.
In collaboration with the American Red Cross, the company said, the donations would aid in providing water, food, clothing, medical supplies as well as housing support in Ukraine and the surrounding war-affected regions. The Caterpillar Foundation also has a 2:1 gifting match, where support is invited from Caterpillar employees and dealers globally.
Jim Umpleby, chairman and CEO of CAT, said of these initiatives:
MOU with Chevron and BNSF
Taking forward its climate-conscious outlook and initiatives, on 14 December 2021 Caterpillar announced a memorandum of understanding (MOU) executed between its subsidiary company Progress Rail, Chevron and BNSF Railway to advance the demonstration of a locomotive powered by hydrogen fuel cells.
Hydrogen fuel has the potential to reduce carbon emissions from transportation. Through this MOU, the three entities will work together closely to test and confirm the feasibility of hydrogen fuels for future use in line-haul services. Details of the initial pilot programme are set to be released at a later date.
Joe Creed, group president of energy and transportation at Caterpillar, said:
Caterpillar stock forecast 2022 to 2025
On 4 May 2022, data compiled by Market Beat suggested a consensus 12-month CAT stock price target of $231. The stock projection varied from a low of $142 to a high of $282. The average price target represented an 26.71% upside change from the last trading price.
Further, out of 15 analysts, 11 recommended to ‘buy’ the CAT stock, with three maintaining ‘hold’, while one suggested ‘sell’.
According to the algorithmic forecasting of WalletInvestor, CAT shares could potentially increase to $194.897 by December 2022. By December 2025, the expectation was for the CAT stock price to hit an average of $223.167.
Several brokerage firms and analysts updated their Caterpillar stock predictions in July. On 18 July, Morgan Stanley pulled its price target on the CAT stock back slightly from $161 to $142, and maintained its ‘underweight’ rating.
On 12 July, while maintaining an ‘overweight’ rating on the stock, JPMorgan adjusted its price target to $205 from the previous $250. And on 13 July, Deutsche Bank Securities also adjusted its CAT stock price target, from $227 to $240, and kept its ‘buy’ rating.
When looking at CAT stock forecasts, it’s important to bear in mind that analysts’ forecasts and price targets can be wrong. A number of factors dictate whether stock prices rise or fall, including the company’s fundamentals and broader macro-economic factors.
CAT stock analysis by forecasters is based on fundamental and technical studies of the stock’s performance to date, but past performance is no guarantee of future results. You should conduct your own analysis, taking in such things as the environment in which the company trades and your own risk tolerance.
Never invest any money that you cannot afford to lose.
FAQs
Will Caterpillar stock go up?
According to WalletInvestor’s Caterpillar share price forecast at the time of writing, the stock could potentially increase to $194.897 by December 2022.
However, analysts’ forecasts can be wrong. Always do your own research before investing, and never invest more money than you can afford to lose.
Is Caterpillar stock a buy, sell or hold?
According to data compiled by Market Beat, 11 analysts out of 15 recommended buying the CAT stock, three maintained a ‘hold’ stance while one analyst suggested selling.
Note, however, that analysts’ predictions are often wrong, and forecasts should not be used as a substitute for your own research. Always conduct your own due diligence, and never invest or trade money you cannot afford to lose.
Is Caterpillar a good investment?
Caterpillar Inc reported a 14% increase in its revenues for the first quarter of 2022.
The mining and heavy machinery maker has benefited significantly from rising commodity prices due to the geopolitical tensions in Russia and Ukraine, However, its Asia-Pacific sales have been adversely affected by China’s imposition of strict lockdowns due to the latest Covid-19 variant.
Whether Caterpillar stock is a suitable investment depends on your own investment objectives. You should conduct your own research and then decide for yourself whether Caterpillar stock is a buy, sell or hold.
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