Will Caterpillar Stock Rise Post Q2 Results?

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Caterpillar

Caterpillar (NYSE: CAT) is scheduled to report its Q2 2022 results on Tuesday, August 2. We expect Caterpillar to post revenue and earnings below the consensus estimates. While a solid demand and strong pricing environment will drive the company’s revenue growth, its overall performance may be weighed down due to supply chain disruptions and lockdowns in China. That said, our forecast indicates that CAT stock has more room for growth from its current levels, as we discuss below. Our interactive dashboard analysis of Caterpillar’s Earnings Preview has additional details.

(1) Revenues expected to be below the consensus estimates

  • Trefis estimates Caterpillar’s Q2 2022 revenues to be around $14.1 billion, reflecting a 9% y-o-y growth but below the $14.4 billion consensus estimate.
  • All of Caterpillar’s segments have seen steady growth over the recent quarters, a trend expected to continue in Q2 as well, driven by strong end-user demand and a strong pricing environment.
  • However, supply chain disruptions and lockdowns in China due to rising Covid cases may have weighed on the overall revenue growth.
  • Looking back at Q1 2022, total revenues grew by 14% y-o-y to $13.6 billion, with gains across the company’s businesses.
  • Resource industries segment led this growth with a 30% y-o-y rise in sales, while construction and energy & transportation segments saw an increase of 12% each.
  • Our dashboard on Caterpillar’s Revenues offers more details on the company’s segments.
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(2) EPS likely to be below the consensus estimates

  • Caterpillar’s Q2 2022 adjusted earnings per share (EPS) is expected to be $2.92 per Trefis analysis, compared to the consensus estimate of $3.01.
  • Caterpillar’s adjusted net income of $1.5 billion in Q1 2022 reflected a considerable 2% y-o-y decline, compared to $1.6 billion in the prior-year quarter.
  • Higher expenses primarily drove this decline. The company’s operating margin declined 160 bps to 13.7% in Q1, compared to 15.3% in the year-ago quarter. Higher freight costs weighed on the manufacturing costs as well; a trend likely continued in Q2 as well.
  • Looking forward, we expect the full-year 2022 adjusted EPS to be higher at $12.17, compared to $10.81 in 2021.

(3) Stock price estimate above the current market price

  • We estimate Caterpillar’s Valuation to be around $235 per share, which is 19% above its current market price of $198.
  • This represents a forward P/E multiple of 19x based on our EPS forecast of $12.17 for 2022, in line with the last three-year average and higher than the 16x CAT stock currently trades.
  • If the company reports upbeat results, with sales growth and 2022 guidance better than the street estimates, the P/E multiple will likely be revised upward, resulting in even higher levels for CAT stock.

While CAT stock has more room for growth, it is helpful to see how Caterpillar’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis 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 Marine Products vs. Tempur Sealy.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Aug 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 CAT Return 0% -4% 114%
 S&P 500 Return 0% -13% 84%
 Trefis Multi-Strategy Portfolio 0% -14% 240%

[1] Month-to-date and year-to-date as of 8/1/2022
[2] Cumulative total returns since the end of 2016

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