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Category: Stock Market and Caterpillar (CAT)
Date: 30 November 2020 Stock Price of Caterpillar: $173.40 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of Caterpillar one of the world's leading machinery and equipment manufacturers. For the 3rd quarter their revenues came in at $9.88 billion and they reported a profit of $688 million.
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About Caterpillar
For more than 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2018 sales and revenues of $54.722 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three primary segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment.
Overview of Caterpillar's 3rd quarter 2020 earnings report
- Total Revenues: $9.88 billion (down from $12.75 billion for the same quarter of the previous year)
- Total Revenues decreased by -22.% over the last 12 months
- Operating costs: $8.89 billion (down from $10.74 billion for the same quarter of the previous year)
- Operating costs decreased by-17.2% over the last 12 months
- Net income: $668 million (down from $1.49 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.22 (down from $2.66 for the same quarter of the previous year)
- PE ratio of Caterpillar: 32
- Diluted weighted-average shares outstanding: 546.4 million (down from 561.2 million for the same quarter of the previous year)
- Cash and cash equivalents: $9.315 billion
- Cash and cash equivalents per share: $17.04
- Cash and cash equivalents makes up 9.8% of Caterpillar's market capital
- Cash and cash equivalents makes up 12.1% of Caterpillar's total assets
- Accounts receivable- finance: $8.966 billion
- Accounts receivable makes up 11.7% of Caterpillar's total assets
- Inventories: $11.5 billion
- Inventories makes up 15% of Caterpillar's total assets
- Stockholders equity of Caterpillar: $14.994 billion
- Stockholders equity per share: $27.44
- So Caterpillar' is trading at 6.3 times its stockholders equity which is outside the expected range of between 2 and 4 times that most firms tend to trade at.
- To put this into perspective the average firm on the S&P500 trades at a price to book value of 3.9
- Cash generated from operations for 9 months : $4.255 billion
- Cash generated from operations per share for 9 months : $7.78
Caterpillar's management commentary on their 3rd quarter 2020 earnings report
DEERFIELD Ill. – Caterpillar Inc. (NYSE: CAT) today announced third-quarter 2020 sales and revenues of $9.9 billion, a 23% decrease compared with $12.8 billion in the third quarter of 2019. The decline was primarily due to lower sales volume driven by lower end-user demand for equipment and services.
Third-quarter 2020 profit per share was $1.22, compared with $2.66 profit per share in the third quarter of 2019. Profit per share in the third quarter of 2020 included pre-tax remeasurement losses of $77 million, or $0.12 per share, resulting from the settlements of pension obligations. Profit per share benefited from lower than expected taxes in the quarter.
Operating profit margin was 10.0% for the third quarter of 2020, compared with 15.8% for the third quarter of 2019. For the nine months ended September 30, 2020, enterprise operating cash flow was $4.3 billion. Caterpillar ended the third quarter with $9.3 billion of enterprise cash and more than $14 billion of available liquidity sources.
“I’m proud of our global team’s performance as we continue to safely navigate the pandemic while remaining firmly committed to serving our customers,” said Caterpillar Chairman and CEO Jim Umpleby. “Our third-quarter results largely aligned with our expectations, and we’re encouraged by positive signs in certain industries and geographies. We’re executing our strategy and are ready to respond quickly to changing market conditions.”
Third-quarter 2020 profit per share was $1.22, compared with $2.66 profit per share in the third quarter of 2019. Profit per share in the third quarter of 2020 included pre-tax remeasurement losses of $77 million, or $0.12 per share, resulting from the settlements of pension obligations. Profit per share benefited from lower than expected taxes in the quarter.
Operating profit margin was 10.0% for the third quarter of 2020, compared with 15.8% for the third quarter of 2019. For the nine months ended September 30, 2020, enterprise operating cash flow was $4.3 billion. Caterpillar ended the third quarter with $9.3 billion of enterprise cash and more than $14 billion of available liquidity sources.
“I’m proud of our global team’s performance as we continue to safely navigate the pandemic while remaining firmly committed to serving our customers,” said Caterpillar Chairman and CEO Jim Umpleby. “Our third-quarter results largely aligned with our expectations, and we’re encouraged by positive signs in certain industries and geographies. We’re executing our strategy and are ready to respond quickly to changing market conditions.”
Total sales and revenues for the third quarter of 2020 were $9.881 billion, a decrease of $2.877 billion, or 23%, compared with $12.758 billion in the third quarter of 2019. The decline was mostly due to lower sales volume driven by lower end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers decreased inventories more during the third quarter of 2020 than during the third quarter of 2019. Sales were lower across all regions and the three primary segments.
Caterpillar (CAT) stock price history over the last 5 years
The image below, obtained from Google, shows the stock price history of Caterpillar over the last 5 years. And it's been a pretty good time for Caterpillar stockholders. 5 years ago it was trading at $70 and its currently trading at around $173.40 a stock. That's a return of 147.7% provided to Caterpillar stockholders over the last 5 years.
The stock of Caterpillar is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Caterpillar's stock is positive at this point in time.
The stock of Caterpillar is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Caterpillar's stock is positive at this point in time.
Caterpillar (CAT) stock vs Deere and Company (DE) stock over the last 5 years
The image below shows the stock price performance of Deere and Company (DE) compared to the stock price performance of Caterpillar (CAT) over the last 5 years. As the image below shows the trend of these two companies' stock price is very similar. The summary below shows the stock price returns provided by these two firms over the last 5 years.
The stock of Deere has easily outperformed that of Caterpillar over the last 5 years.
- Deere and Company (DE): 229.1%
- Caterpillar (CAT): 152.4%
The stock of Deere has easily outperformed that of Caterpillar over the last 5 years.
Recent coverage of Caterpillar
The extract below discusses the latest on Caterpillar as obtained from Forbes.com
Caterpillar stock (NYSE: CAT) is up 16% since the start of the year and it has gained around 2x from its March lows. Caterpillar faces downside risk as the company’s revenues in the last four quarters have declined by 21%. The ongoing Covid-19 crisis and the economic uncertainty has hit the company’s construction as well as energy equipment business. This is likely to impact the revenue growth rate of the company – leading to a drop in the stock price.
Following a large 2x rise since the March 23 lows of this year, at the current price near $175 per share, we believe CAT stock has reached its near term potential. CAT stock has rallied from $92 to $175 off the recent bottom compared to the S&P which moved 60% over the same time period. Better than expected Q3 earnings and a faster than expected rebound in economic activity has helped the stock in beating overall markets. Moreover, the stock is up 36% from levels seen in early 2019, over a year ago. CAT stock has fully recovered to the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic, and it is now 28% above the pre-Covid highs.
Read the full article here
Caterpillar stock (NYSE: CAT) is up 16% since the start of the year and it has gained around 2x from its March lows. Caterpillar faces downside risk as the company’s revenues in the last four quarters have declined by 21%. The ongoing Covid-19 crisis and the economic uncertainty has hit the company’s construction as well as energy equipment business. This is likely to impact the revenue growth rate of the company – leading to a drop in the stock price.
Following a large 2x rise since the March 23 lows of this year, at the current price near $175 per share, we believe CAT stock has reached its near term potential. CAT stock has rallied from $92 to $175 off the recent bottom compared to the S&P which moved 60% over the same time period. Better than expected Q3 earnings and a faster than expected rebound in economic activity has helped the stock in beating overall markets. Moreover, the stock is up 36% from levels seen in early 2019, over a year ago. CAT stock has fully recovered to the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic, and it is now 28% above the pre-Covid highs.
Read the full article here
Caterpillar (NYSE: CAT) latest stock valuation
So what is Caterpillar's stock worth based on the release of their 3rd quarter 2020 earnings report? Based on Caterpillar's 3rd quarter 2020 earnings report our valuation model provides a target price (full value price) for Caterpillar (CAT) at $131.10 a stock. We therefore believe that the stock of Caterpillar is overvalued.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $131.10. Therefore we see a good entry point into Caterpillar stock at $118 or below.
We expect the stock of Caterpillar to pull back from its current price to levels closer to our target price in coming weeks and months. Since the stock of Caterpillar is trading at well above our suggested entry point we rate the stock of Caterpillar as a sell
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $131.10. Therefore we see a good entry point into Caterpillar stock at $118 or below.
We expect the stock of Caterpillar to pull back from its current price to levels closer to our target price in coming weeks and months. Since the stock of Caterpillar is trading at well above our suggested entry point we rate the stock of Caterpillar as a sell
Next earnings release of Caterpillar
It is expected that Caterpillar will release their 4th quarter 2020 earnings report in late February 2021