Caterpillar (NYSE: CAT) is scheduled to report its Q3 2022 results on Thursday, October 27. We expect CAT stock to trade lower post-Q3, with revenue and earnings falling below the consensus estimates. While a strong pricing environment and robust demand for resource and energy industries equipment will likely drive the company’s revenue growth, its overall performance may be weighed down due to supply chain disruptions and forex headwinds. . That said, our forecast indicates that CAT stock has ample 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 Q3 2022 revenues to be around $14.4 billion, reflecting a 16% y-o-y growth but below the $14.6 billion consensus estimate.
- All of Caterpillar’s segments have seen steady growth over the recent quarters, a trend expected to continue in Q3 as well, driven by strong end-user demand and a robust pricing environment.
- However, supply chain disruptions and forex headwinds may have weighed on the overall revenue growth.
- Looking back at Q2 2022, total revenues grew by 11% y-o-y to $14.2 billion, with gains across the company’s businesses.
- Energy & Transportation and Resource industries segments both saw mid-teens sales growth.
- 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 Q3 2022 adjusted earnings per share (EPS) is expected to be $3.07 per Trefis analysis, compared to the consensus estimate of $3.20.
- Caterpillar’s adjusted net income of $1.7 billion in Q2 2022 reflected a considerable 18% y-o-y rise, compared to $1.4 billion in the prior-year quarter.
- Higher revenues and a lower effective tax rate primarily drove this profit increase. The company’s operating margin declined 30 bps to 13.8% in Q2, compared to 14.1% in the year-ago quarter. Higher freight costs weighed on the manufacturing costs as well; a trend that likely continued in Q3.
- Looking forward, we expect the full-year 2022 adjusted EPS to be higher at $12.48, 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 21% above its current market price of $195.
- This represents a forward P/E multiple of 19x based on our EPS forecast of $12.48 for 2022, in line with the last three-year average and higher than the 16x CAT stock currently trades at.
- If the company reports upbeat results, with sales growth and outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in even higher levels for CAT stock.
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.
|S&P 500 Return||8%||-19%||72%|
|Trefis Multi-Strategy Portfolio||6%||-22%||209%|
 Month-to-date and year-to-date as of 10/26/2022
 Cumulative total returns since the end of 2016