Will Caterpillar Stock Rebound After A 6% Fall In A Week?

by Trefis Team
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[Updated: 9/22/2021] CAT Stock Decline

The stock price of Caterpillar (NYSE:CAT) has seen a decline of 6% over the last five trading days. The recent decline can be attributed to rising concerns of slowing growth in China if Evergrande – China’s largest real-estate firm with over $300 billion in debt – were to default. This also impacts some of the industrial companies, such as Caterpillar, which generates close to a quarter of its revenues from Asia-Pacific, and China accounts for a significant portion of that. But will CAT stock continue its downward trajectory over the coming weeks, or is a rise in the stock imminent?

According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price using ten years of historical data, returns for CAT stock average around 3.6% in the next one-month (twenty-one trading days) period after experiencing a 6.2% fall over the previous week (five trading days), implying that the stock will likely rebound in the near term. But how would the returns fare if you are interested in holding CAT stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Caterpillar stock price forecast. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

And if you are considering CAT stock as an investment over a larger time frame, you can explore our forecast for Caterpillar’s valuation.

MACHINE LEARNING ENGINE – try it yourself:

If CAT stock moved by -5% over five trading days, then over the next twenty-one trading days CAT stock moves an average of 3.3%, with a 58.5% probability of a positive return over this period, based on the stock’s historical performance.

Some Fun Scenarios, FAQs & Making Sense of Caterpillar Stock Movements:

Question 1: Is the price forecast for Caterpillar stock higher after a drop?

Answer: Consider two situations,

Case 1: Caterpillar stock drops by -5% or more in a week

Case 2: Caterpillar stock rises by 5% or more in a week

Is the price forecast for Caterpillar stock higher over the subsequent month after Case 1 or Case 2?

CAT stock fares better after Case 1, with an expected return of 3.2% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an expected return of 1.1% for Case 2. This implies a price forecast of $196 in Case 1 and a figure of $192 in Case 2 using CAT market price of $189.84 on 9/22/2021.

In comparison, the S&P 500 has an expected return of 3.1% over the next 21 trading days under Case 1, and an expected return of just 0.5% for Case 2 as detailed in our dashboard that details the expected return for the S&P 500 after a rise or drop.

Try the Trefis machine learning engine above to see for yourself how the forecast for Caterpillar stock is likely to changes after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Caterpillar stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For CAT stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Caterpillar after a larger loss over the last week, month, or quarter.

Question 3: What about the stock price forecast after a rise if you wait for a while?

Answer: The expected return after a rise is understandably lower than after a drop as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although CAT stock appears to be an exception to this general observation.

It’s pretty powerful to test the trend for yourself for Caterpillar stock by changing the inputs in the charts above.

 

[Updated: 8/6/2021] CAT Stock Update

Caterpillar (NYSE:CAT) recently reported its Q2 results, which were largely in-line with the Trefis estimates. The company reported sales of $12.9 billion, up 29% y-o-y, and it was comfortably above our forecast of 12.1 Bil and 12.6 Bil consensus estimates.  The sales growth was visible across all the segments, with both construction and resources segments seeing revenue growth of roughly 40% each, and energy & transportation revenue rising 20%. The sales growth was driven by both an increase in end user demand as well as dealer inventory levels.

Looking at the bottom-line, the company reported adjusted earnings of $2.60 per share, up over 2x y-o-y, driven by both an increase in revenue as well as margin expansion. The earnings were comfortably above our forecast of $2.32 and the consensus estimate of $2.38 per share. That said, the margins are likely to see some pressure in Q3, given an increase in raw material prices.

We have updated our model following the Q2 release. We now forecast sales to be $49.4 billion for the full-year 2021, up 18% y-o-y, compared to our previous estimate of $48.6 billion. Looking at the bottom line, we estimate adjusted EPS to be $9.90, compared to our earlier estimate of $9.72, and ten cents higher compared to the consensus estimate of $9.80. Given the changes to our revenues and earnings forecast, we have revised our Caterpillar Valuation at $237 per share, based on $9.90 expected EPS and a little under 24x P/E multiple for 2021. This marks an 8% growth from our prior estimate, reflecting a premium of nearly 15% to the current market price of $207.

 

[Updated: 7/28/2021] Caterpillar Q2 Earnings Preview

Caterpillar (NYSE:CAT) is scheduled to report its Q2 2020 results on Friday, July 30. We expect Caterpillar to likely post revenue and earnings below the consensus estimates. While a gradual opening up of the economies has resulted in a sharp rebound in overall equipment demand over the recent quarters, a trend likely continued in Q2 as well, the company’s overall performance may be weighed down by higher raw material costs and supply chain headwinds. Furthermore, going by our Caterpillar valuation of $219 per share, which is just 4% above the current market price of $210, there is only a little room left for growth, in our view. Our interactive dashboard analysis on Caterpillar’s Pre-Earnings has additional details.

(1) Revenues expected to be below the consensus estimates

Trefis estimates Caterpillar’s Q2 2021 revenues to be around $12.1 billion, compared to the $12.6 billion consensus estimate. While the project timelines and cash flows for real estate developers were affected due to the halt in certain construction activities, especially in Q2 2020, impacting Caterpillar’s business, the gradual opening up of economies and resumption of construction activities is likely to have aided sales in Q2. Other than construction, the company’s other segments – resource industries, and energy & transportation – will likely see a rebound in sales, as well. In fact, even in Q1 2021, Caterpillar’s overall sales were up 13%, led by a sharp 27% jump in construction industries, while resource, and energy & transportation revenues grew 6% and 4%, respectively. Our dashboard on Caterpillar’s Revenues offers more details on the company’s segments.

2) EPS likely to be below the consensus estimates

Caterpillar Q2 2021 adjusted earnings per share (EPS) is expected to be $2.32 per Trefis analysis, compared to $2.38 as per the consensus estimate. Caterpillar’s adjusted net income of around $1.6 billion in Q1 2021 reflected a 74% rise from its $911 million figure in the prior-year quarter. This can be attributed to higher revenues and expansion of margins. However, as we look forward, a pressure on the company’s margins is anticipated, given inflated raw materials costs, and continued supply chain challenges. For the full-year 2021, we expect the adjusted EPS to be higher at $9.72 compared to $6.56 in 2020.

(3) Stock price estimate slightly above the current market price

Going by our Caterpillar Valuation, with an EPS estimate of around $9.72 and a P/E multiple of around 22x in 2021, this translates into a price of $219, which is just 4% above the current market price of around $210. We know that CAT is poised to benefit from an economic recovery, with growth in construction industries, and this should bode well for its top-line expansion. However, we believe that the positives are largely priced in the current stock value of $210 per share, in our view, implying there is not much room for growth for CAT stock in the near term. That said, if the company reports upbeat results, with recovery in sales faster than our estimates, and the guidance for the full-year is revised upward, it will result in CAT stock seeing higher levels.

While CAT stock may have only a little room left for growth in the near term, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for 3M vs. Ingevity.

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