Following A 39% Rise This Year Is Boeing Stock A Better Pick Over Caterpillar?

BA: The Boeing Company logo
The Boeing Company

We believe Caterpillar stock (NYSE: CAT) is a better pick than Boeing stock (NYSE: BA) for the next three years. Although these companies are in different businesses, we compare them given that they belong to the same sector – Industrial. Both stocks have a market capitalization in the range of $145 billion and $160 billion. Also, both stocks trade at around 2x revenues. While Caterpillar has seen better revenue growth in recent years and is more profitable, Boeing’s sales growth has been better in the last twelve months. There is more to the comparison, and in the sections below, we discuss why we believe that Caterpillar will offer better returns than Boeing in the next three years. We compare a slew of factors, such as historical revenue growth, stock returns, and valuation.

BA stock has shown strong gains of 25% from levels of $215 in early January 2021 to around $265 now, vs. a similar change for the S&P 500 over this roughly three-year period. But CAT stock has outperformed with extremely strong gains of 60% from levels of $180 in early January 2021 to around $285 now.

However, the increase in BA stock has been far from consistent. Returns for the stock were -6% in 2021, -5% in 2022, and 39% in 2023 (YTD). CAT is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for CAT stock were 14% in 2021, 16% in 2022, and 19% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 23% in 2023 (YTD) – indicating that BA underperformed the S&P in 2021, while  CAT underperformed the S&P in 2021 and 2023.

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In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the industrial sector, including UNP, CAT, and UPS, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BA and CAT face a similar situation as they did in 2021 and underperform the S&P over the next 12 months – or will they see a strong jump? While we expect both stocks to trend higher in the next three years, we think CAT will continue to outperform BA.

1. Caterpillar’s revenue growth is better

  • Caterpillar’s revenue growth has been better, with a 5.4% average annual growth rate in the last three years, compared to -3.3% for Boeing.
  • Caterpillar has benefited from a robust industrial equipment demand and price environment.
  • All of its segments – construction industries, energy and transportation, and resource industries – have seen sales growth in recent years.
  • The revenue decline for Boeing can primarily be attributed to the impact of the 737 Max grounding in 2019 and the Covid-19 pandemic on the company’s businesses, given that commercial airlines was one of the worst-hit sectors during the coronavirus crisis. Commercial airplane was the largest segment for Boeing, accounting for 57% of total sales in 2018, but the contribution dropped to 39% in 2022.
  • Boeing, over recent years, has struggled to ramp up its production, impacting its deliveries. Supply chain disruption and labor issues for some suppliers further added to its woes.
  • However, if we look at the last twelve-month period revenues, Boeing has fared better with sales growth of 23.3% vs. 17.6% for Caterpillar.
  • Boeing, of late, has seen a rise in deliveries. It delivered 480 airplanes in 2022, vs. 340 in 2021 and 157 in 2020, reflecting significant growth. Although this trend was expected to continue in the near term, Boeing reported a 6% decline in commercial airplane deliveries to 105 in Q3’23. The company lowered its 2023 delivery outlook to 375-400 737 aircraft compared to its prior guidance of 400-450. This can be attributed to fuselage-related issues in production
  • Our Boeing Revenue Comparison and Caterpillar Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Boeing’s revenue is expected to grow faster than Caterpillar’s over the next three years. We think Caterpillar will likely see its pricing growth moderating in the near term, with a tough comparison amid the significant contribution to top-line growth from pricing gains in the recent quarters.

2. Caterpillar Is More Profitable

  • Boeing’s reported operating margin slid from -2.6% in 2019 to -22.0% in 2020 due to the impact of the pandemic and the grounding of 737-MAX. However, it has recovered since then to -5.3% in 2022. In comparison, Caterpillar’s operating margin declined from 14.6% in 2019 to 12.6% in 2022 due to increased input costs.
  • Looking at the last twelve-month period, Caterpillar’s operating margin of 16.5% fares far better than -1.9% for Boeing.
  • Our Boeing Operating Income Comparison and Caterpillar Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. While Boeing’s 34% debt as a percentage of equity is higher than 3% for Caterpillar, its 10% cash as a percentage of assets is higher than 7% for the latter, implying that Caterpillar has a better debt position, but Boeing has more cash cushion.

3. The Net of It All

  • We see that Caterpillar has seen better revenue growth over recent years, is more profitable, and has a better debt position. On the other hand, Boeing has seen superior revenue growth over the last twelve months and has more cash cushion.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Caterpillar is the better choice of the two. The production ramp-up remains a near-term risk for Boeing, while Caterpillar may still continue to benefit from a strong demand environment even if the pricing growth moderates.
  • If we compare the current valuation multiples, both stocks are trading above their historical averages. Boeing’s stock trades at 2.0x trailing revenues versus its last five-year average of 1.9x, and Caterpillar’s stock trades at 2.2x trailing revenues vs. the last five-year average of 1.9x.
  • Our Boeing (BA) Valuation Ratios Comparison and Caterpillar (CAT) Valuation Ratios Comparison have more details.

While CAT stock may outperform BA, it is helpful to see how Boeing’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Dec 2023
MTD [1]
YTD [1]
Total [2]
 BA Return 14% 39% 70%
 CAT Return 14% 19% 208%
 S&P 500 Return 3% 23% 111%
 Trefis Reinforced Value Portfolio 6% 36% 600%

[1] Month-to-date and year-to-date as of 12/16/2023
[2] Cumulative total returns since the end of 2016

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