Caterpillar (NYSE: CAT) earnings release for the 1st quarter of their 2020 fiscal year
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 1st quarter 2020 earnings report
- Total Revenues: $10.635 billion (down from $13.466 billion for the same quarter of the previous year)
- Total Revenues decreased by -21% over the last 12 months
- Operating costs: $9.231 billion (down from $11.259 billion for the same quarter of the previous year)
- Operating costs decreased by-21% over the last 12 months
- Net income: $1.092 billion (down from $1.881 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.98 (down from $3.25 for the same quarter of the previous year)
- PE ratio of Caterpillar: 14.5
- Diluted weighted-average shares outstanding: 551.1 million (down from 578.8 million for the same quarter of the previous year)
- Cash and cash equivalents: $7.123 billion
- Cash and cash equivalents per share: $12.92
- Cash and cash equivalents makes up 11.2% of Caterpillar's market capital
- Cash and cash equivalents makes up 9.4% of Caterpillar's total assets
- Accounts receivable- finance: $9.120 billion
- Accounts receivable makes up 12.1% of Caterpillar's total assets
- Inventories: $11.748 billion
- Inventories makes up 15.5% of Caterpillar's total assets
- Stockholders equity of Caterpillar: $14.239 billion
- Stockholders equity per share: $25.83
- So Caterpillar' is trading at 4.48 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 3.34. Read more about the S&P500 here
- Cash generated from operations : $1.130 billion
- Cash generated from operations per share : $2.05
Caterpillar's management commentary on their 1st quarter 2020 earnings report
DEERFIELD, Ill. – Caterpillar Inc. (NYSE: CAT) today announced first-quarter 2020 sales and revenues of $10.6 billion, a 21% decrease compared with $13.5 billion in the first quarter of 2019. The decline was due to lower sales volume driven by lower end-user demand and the impact from changes in dealer inventories. Dealers increased machine and engine inventories about $100 million during the first quarter of 2020, compared with about $1.3 billion during the first quarter of 2019
Response to COVID-19 and Global Business Conditions “We remain committed to the safety, health and well-being of our employees around the world, and I am proud of our employees and dealers for their dedication to our customers, their communities and each other,” said Caterpillar Chairman and CEO Jim Umpleby. “Our employees deliver products and services that enable our customers to provide critical infrastructure essential to support society during the COVID-19 pandemic.”
Response to COVID-19 and Global Business Conditions “We remain committed to the safety, health and well-being of our employees around the world, and I am proud of our employees and dealers for their dedication to our customers, their communities and each other,” said Caterpillar Chairman and CEO Jim Umpleby. “Our employees deliver products and services that enable our customers to provide critical infrastructure essential to support society during the COVID-19 pandemic.”
Operational Impacts
Caterpillar has implemented safeguards in its facilities to protect team members, including increased frequency of cleaning and disinfecting facilities, social distancing practices and other measures consistent with specific regulatory requirements and guidance from health authorities. Many governments classified Caterpillar’s operations as an essential activity for support of critical infrastructure. Caterpillar has suspended operations temporarily at certain facilities during the last several weeks due to supply chain issues, weak customer demand or government regulations. As of mid-April 2020, globally and across the three primary segments, approximately 75% of the company’s primary production facilities continue to operate. Some facilities that were temporarily closed have reopened.
The company will continue to monitor the situation and may suspend operations temporarily at additional facilities if warranted by business conditions. The company has taken actions to reduce costs, including reducing discretionary expenses and suspending 2020 base salary increases and short-term incentive compensation plans for many employees and all senior executives. Caterpillar is prioritizing spending to allow continued investment in services and expanded offerings, key elements of its strategy for profitable growth introduced in 2017. Outlook Caterpillar’s financial results for the remainder of 2020 will be impacted by continued global economic uncertainty due to the COVID-19 pandemic. As such, Caterpillar withdrew its earnings guidance on March 26 and is not providing a financial outlook for 2020 at this time. “We have taken decisive actions to enhance our strong financial position, while continuing to execute our strategy for profitable growth,” said Umpleby. “Caterpillar has faced and overcome many challenges in our 95-year history. Our goal is to emerge from the pandemic an even stronger company.”
Caterpillar has implemented safeguards in its facilities to protect team members, including increased frequency of cleaning and disinfecting facilities, social distancing practices and other measures consistent with specific regulatory requirements and guidance from health authorities. Many governments classified Caterpillar’s operations as an essential activity for support of critical infrastructure. Caterpillar has suspended operations temporarily at certain facilities during the last several weeks due to supply chain issues, weak customer demand or government regulations. As of mid-April 2020, globally and across the three primary segments, approximately 75% of the company’s primary production facilities continue to operate. Some facilities that were temporarily closed have reopened.
The company will continue to monitor the situation and may suspend operations temporarily at additional facilities if warranted by business conditions. The company has taken actions to reduce costs, including reducing discretionary expenses and suspending 2020 base salary increases and short-term incentive compensation plans for many employees and all senior executives. Caterpillar is prioritizing spending to allow continued investment in services and expanded offerings, key elements of its strategy for profitable growth introduced in 2017. Outlook Caterpillar’s financial results for the remainder of 2020 will be impacted by continued global economic uncertainty due to the COVID-19 pandemic. As such, Caterpillar withdrew its earnings guidance on March 26 and is not providing a financial outlook for 2020 at this time. “We have taken decisive actions to enhance our strong financial position, while continuing to execute our strategy for profitable growth,” said Umpleby. “Caterpillar has faced and overcome many challenges in our 95-year history. Our goal is to emerge from the pandemic an even stronger company.”
Caterpillar (NYSE: CAT) stock price history
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 $87.40 and its currently trading at around $115.46 a stock. That's a return of 32.1% provided to Caterpillar stockholders over the last 5 years.
The stock of Caterpillar is trading at closer to its 52 week low of $87.50 than it is to its 52 week high of $150.55, which to us is a clear indication that the short term sentiment and momentum of Caterpillar's stock is negative at this point in time.
The stock of Caterpillar is trading at closer to its 52 week low of $87.50 than it is to its 52 week high of $150.55, which to us is a clear indication that the short term sentiment and momentum of Caterpillar's stock is negative at this point in time.
Recent Google searches for CAT stock price and Caterpillar stock price
The graphic below shows google searches for CAT stock price and caterpillar stock price as obtained from Google Trends. And there was a significant spike the searches for CAT stock price in early to middle March 2020.
Recent coverage of Caterpillar
The extract below discusses the latest on Caterpillar as obtained from TheStreet.com
Caterpillar (CAT) was downgraded to underweight from equal weight by a Morgan Stanley analyst who said the heavy-equipment maker could suffer from a protracted downturn in nonresidential construction accelerated by the coronavirus pandemic. Shares of the Deerfield, Ill., company at last check were down 1.6% to $112.23.
Analyst Courtney Yakavonis, who also cut her stock-price target to $93 a share from $107, said in a note to clients that "we are gaining conviction in a more protracted U.S. [nonresidential] down cycle driven by declines in commercial, office, amusement/ recreation and lodging construction, as well as state and local [budget] cuts."
"Covid-19-related headwinds will likely continue to weigh on global economic growth across CAT's primarily end markets," Yakavonis said. Yakavonis added that "not only do we expect the covid-19 to catalyze a multiyear downturn in the nonresidential cycle beginning in 2020, but we see additional pressures from the decline in [oil and gas] and commodity prices as well as elevated new and used inventory levels." "Though infrastructure stimulus or additional state and local aid could offset this shortfall, we find it unlikely that current proposals can stimulate growth much beyond closing this gap," she said.
Read the full article here
Caterpillar (CAT) was downgraded to underweight from equal weight by a Morgan Stanley analyst who said the heavy-equipment maker could suffer from a protracted downturn in nonresidential construction accelerated by the coronavirus pandemic. Shares of the Deerfield, Ill., company at last check were down 1.6% to $112.23.
Analyst Courtney Yakavonis, who also cut her stock-price target to $93 a share from $107, said in a note to clients that "we are gaining conviction in a more protracted U.S. [nonresidential] down cycle driven by declines in commercial, office, amusement/ recreation and lodging construction, as well as state and local [budget] cuts."
"Covid-19-related headwinds will likely continue to weigh on global economic growth across CAT's primarily end markets," Yakavonis said. Yakavonis added that "not only do we expect the covid-19 to catalyze a multiyear downturn in the nonresidential cycle beginning in 2020, but we see additional pressures from the decline in [oil and gas] and commodity prices as well as elevated new and used inventory levels." "Though infrastructure stimulus or additional state and local aid could offset this shortfall, we find it unlikely that current proposals can stimulate growth much beyond closing this gap," she said.
Read the full article here
Caterpillar (NYSE: CAT) latest stock valuation
So what is Caterpillar's stock worth based on the release of their 1st quarter 2020 earnings report? Based on Caterpillar's 1st quarter 2020 earnings report our valuation model provides a target price (full value price) at $126.70 a Caterpillar stock. We therefore believe that the stock of Caterpillar is slightly overvalued.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $126.70. Therefore we see a good entry point into Caterpillar stock at $114 or below. We expect the stock of Caterpillar to pull back slightly from its current price to levels closer to our target price in coming weeks and months.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $126.70. Therefore we see a good entry point into Caterpillar stock at $114 or below. We expect the stock of Caterpillar to pull back slightly from its current price to levels closer to our target price in coming weeks and months.
Next earnings release of Caterpillar
It is expected that Caterpillar will release their 2nd quarter 2020 earnings report in late July 2020