Strong Pricing Trends To Bolster Caterpillar’s Q1

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Caterpillar

Caterpillar (NYSE: CAT) is scheduled to report its Q1 2023 results on Thursday, April 27. We expect CAT stock to trade lower post-Q1, with revenue and earnings falling below the consensus estimates. While a strong pricing environment and robust demand for resource and energy equipment will likely drive the company’s revenue growth, its overall performance may be weighed down due to higher raw material and freight costs. Also, our forecast indicates that CAT stock has little room for growth, as discussed 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 Q1 2023 revenues to be around $15.0 billion, reflecting a low double-digit y-o-y growth but below the $15.3 billion consensus estimate.
  • All of Caterpillar’s segments have seen steady growth over the recent quarters, a trend expected to continue in Q1 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 Q4 2022, total revenues grew by 21% y-o-y to $15.9 billion, with gains across the segments.
  • Resource industries segment led the growth, with sales rising 26%, while Energy & Transportation sales were up 19%.
  • 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 Q1 2023 adjusted earnings per share (EPS) is expected to be $3.65 per Trefis analysis, vs. the consensus estimate of $3.78. This compares with the $2.88 figure the company reported in the prior-year quarter.
  • Caterpillar’s adjusted net income of $2.0 billion in Q4 2022 reflected a considerable 38% y-o-y rise, compared to $1.5 billion in the prior-year quarter.
  • Higher revenues and a 560 bps rise in operating margins drove the bottom-line growth.
  • Looking forward, we expect the full-year 2023 adjusted EPS to be higher at $15.32, compared to $13.84 in 2022.

(3) CAT stock has little room for growth

  • We estimate Caterpillar’s Valuation to be around $245 per share, about 10% above the current market price of $223.
  • At its current levels, CAT stock is trading at a forward P/E multiple of 15x based on our EPS forecast of $15.32 for 2023, compared to the last three-year average of 16x, implying that it has little room for growth.
  • If the company reports upbeat results, and raises its 2023 outlook, the P/E multiple will likely be revised upward, resulting in higher levels for CAT stock.

While CAT stock has little 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 Apr 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CAT Return -2% -7% 141%
 S&P 500 Return 1% 8% 85%
 Trefis Multi-Strategy Portfolio 1% 9% 244%

[1] Month-to-date and year-to-date as of 4/25/2023
[2] Cumulative total returns since the end of 2016

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