What’s Next For Caterpillar Stock After A 19% Rise In A Month?

CAT: Caterpillar logo

Caterpillar stock (NYSE: CAT) is up a solid 19% in a month, significantly outperforming the broader S&P500 index, up just 2%. The rise in CAT stock can be attributed to its upbeat Q3 results. Its top and bottom line were well above our estimates, driven by both sales growth and better price realization. Caterpillar’s revenue of $15.0 billion reflected a 21% y-o-y growth, driven by a 30% jump in resource industries revenue, a 22% rise in energy & transportation, and 19% growth for the construction industries segment. The company’s operating margin also improved by 280 bps to 16.5%.

Overall, Caterpillar’s Q3 results were good, and it expects the momentum to continue in Q4 as well. Given the recently announced results and outlook, we have updated our model and revised our estimates. We expect full-year 2022 revenue to be $58.5 billion and earnings to be $13.91 on a per-share and adjusted basis. We have revised our  Caterpillar valuation to $251 per share (vs. $235 earlier), reflecting a 17% upside from its current market price near $215.

Our valuation is based on a forward P/E ratio of under 18x based on our earnings forecast of $13.91 on a per-share basis for the full-year 2022. At its current levels, CAT stock is trading under 15x its forward earnings, compared to the last three-year average of 19x, implying some more room for growth.

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But what about the near term?

Given that CAT stock has seen a rise of 19% in a month, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a lower chance of a rise for CAT stock over the next month. A move of 19% in a month has occurred 21 times in the past ten years. Of those instances, only four resulted in CAT stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 4 out of 21, or about a 19% chance of a rise in CAT stock over the next month. See our analysis of Caterpillar Stock Chance of Rise for more details.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last ten years’ data

  • After moving 9% or more over five days, the stock rose on 42% of the occasions in the next five days.
  • After moving 16% or more over ten days, the stock rose on 25% of the occasions in the next ten days.
  • After moving 19% or more over a twenty-one-day period, the stock rose on 19% of the occasions in the next twenty-one days.

This pattern suggests a lower chance of a rise in CAT stock over the next five, ten, and twenty-one days.

Caterpillar (CAT) Return (Recent) Comparison With Peers

  • Five-Day Return: TEX highest at 9.2%; ASTE lowest at -15.8%
  • Ten-Day Return: TEX highest at 16.4%; ASTE lowest at -6.2%
  • Twenty-One Day Return: TEX highest at 19.4%; CNHI lowest at -2.3%

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 and recent market volatility have 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 Nov 2022
MTD [1]
YTD [1]
Total [2]
 CAT Return -1% 4% 131%
 S&P 500 Return -5% -23% 64%
 Trefis Multi-Strategy Portfolio -4% -25% 196%

[1] Month-to-date and year-to-date as of 11/3/2022
[2] Cumulative total returns since the end of 2016

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