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Category: Stock Market and Caterpillar (CAT)
Date: 31 January 2021 Stock Price of Caterpillar (CAT): $182.84 We take a look at the 4th quarter earnings report of their 2020 fiscal year of Caterpillar one of the world's leading machinery and equipment manufacturers. For the 4th quarter their revenues came in at $11.2 billion and they reported a profit of $780 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 4th quarter 2020 earnings report
- Total Revenues: $11.2 billion (down from $13.1 billion for the same quarter of the previous year)
- Total Revenues decreased by -14.5.% over the last 12 months
- Operating costs: $9.86 billion (down from $11.29 billion for the same quarter of the previous year)
- Operating costs decreased by-12.7% over the last 12 months
- Net income: $780 million (down from $1.09 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.42 (down from $1.97 for the same quarter of the previous year)
- PE ratio of Caterpillar: 33.5
- Diluted weighted-average shares outstanding: 549.5 million (down from 556.1 million for the same quarter of the previous year)
- Cash and cash equivalents: $9.352 billion
- Cash and cash equivalents per share: $17.02
- Cash and cash equivalents makes up 9.3% of Caterpillar's market capital
- Cash and cash equivalents makes up 11.9% of Caterpillar's total assets
- Accounts receivable- finance: $7.35 billion
- Accounts receivable makes up 9.3% of Caterpillar's total assets
- Inventories: $11.4 billion
- Inventories makes up 14.6% of Caterpillar's total assets
- Stockholders equity of Caterpillar: $15.38 billion
- Stockholders equity per share: $27.98
- So Caterpillar' is trading at 6.7 times its stockholders equity which is outside the expected range of between 2 and 6 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 4.2
- Cash generated from operations for full fiscal year : $6.32 billion
- Cash generated from operations per share for full fiscal year : $11.50
Caterpillar's management commentary on their 4th quarter 2020 earnings report
DEERFIELD, Ill. – Caterpillar Inc. (NYSE: CAT) today announced fourth-quarter and full-year results for 2020. Sales and revenues for the fourth quarter of 2020 were $11.2 billion, a 15% decrease compared with $13.1 billion in the fourth quarter of 2019. Operating profit margin was 12.3% for the fourth quarter of 2020, compared with 14.1% for the fourth quarter of 2019. Fourth-quarter 2020 profit per share was $1.42, compared with $1.97 profit per share in the fourth quarter of 2019. Adjusted profit per share in the fourth quarter of 2020 was $2.12, compared with fourth-quarter 2019 adjusted profit per share of $2.71. Fourth-quarter 2020 adjusted profit per share of $2.12 reflects strong operational performance and a lower effective tax rate.
Full-year sales and revenues in 2020 were $41.7 billion, down 22% compared with $53.8 billion in 2019. The sales decline reflected lower end-user demand and dealers reducing their inventories by $2.9 billion in 2020. Operating profit margin was 10.9% for 2020, compared with 15.4% for 2019. Full-year profit was $5.46 per share in 2020, compared with profit of $10.74 per share in 2019. Adjusted profit per share in 2020 was $6.56, compared with adjusted profit per share of $11.40 in 2019. “I’m proud of our global team’s continued resilience in safely navigating COVID-19 while continuing to provide the essential products and services the world needs,” said Caterpillar Chairman and CEO Jim Umpleby.
“Our fourth quarter and full-year results reflect the team’s agility in a challenging environment while executing our strategy for long-term profitable growth. We achieved the adjusted operating profit margin established during our 2019 Investor Day while continuing to invest in products and services. We are well-positioned for the future and will emerge from the pandemic as an even stronger company.
Full-year sales and revenues in 2020 were $41.7 billion, down 22% compared with $53.8 billion in 2019. The sales decline reflected lower end-user demand and dealers reducing their inventories by $2.9 billion in 2020. Operating profit margin was 10.9% for 2020, compared with 15.4% for 2019. Full-year profit was $5.46 per share in 2020, compared with profit of $10.74 per share in 2019. Adjusted profit per share in 2020 was $6.56, compared with adjusted profit per share of $11.40 in 2019. “I’m proud of our global team’s continued resilience in safely navigating COVID-19 while continuing to provide the essential products and services the world needs,” said Caterpillar Chairman and CEO Jim Umpleby.
“Our fourth quarter and full-year results reflect the team’s agility in a challenging environment while executing our strategy for long-term profitable growth. We achieved the adjusted operating profit margin established during our 2019 Investor Day while continuing to invest in products and services. We are well-positioned for the future and will emerge from the pandemic as an even stronger company.
In 2020, adjusted profit per share excluded mark-to-market losses for remeasurement of pension and other postemployment benefit (OPEB) plans and restructuring costs. In 2019, adjusted profit per share excluded mark-to market losses for remeasurement of pension and OPEB plans, restructuring costs and a discrete tax benefit related to U.S. tax reform. Please see in the appendix on page 14 a reconciliation of GAAP to non-GAAP financial measures. For the full year of 2020, enterprise operating cash flow was $6.3 billion. During the year, the company paid dividends of $2.2 billion and repurchased $1.1 billion of Caterpillar common stock. Liquidity remains strong with an enterprise cash balance of $9.4 billion at the end of 2020.
Caterpillar (CAT) stock price chart over the last 5 years
The image below shows the stock price history of Caterpillar (CAT) over the last 5 years. And it's been a pretty good time for Caterpillar stockholders.The stock of Caterpillar increased by 175% 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): 262.8%
- Caterpillar (CAT): 175%
The stock of Deere has easily outperformed that of Caterpillar over the last 5 years.
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 4th quarter 2020 earnings report our valuation model provides a target price (full value price) for Caterpillar (CAT) at $127.20 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 $127.20. Therefore we see a good entry point into Caterpillar stock at $114.50 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 $127.20. Therefore we see a good entry point into Caterpillar stock at $114.50 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 (CAT)
It is expected that Caterpillar will release their 1st quarter 2021 earnings report in late April 2021