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Caterpillar Inc. Message Board

  • alphahunter Jun 10, 2009 9:22 PM Flag

    $50bn t/o in 5 years' time

    Now 80% chance of $50bn revenues in 5 years's time, gives us a valuation in 4 years' time of say $75 (e.g. gutfeeling average price achieved in mid 07 - mid 08 based on expectations for 2008).
    Add 20% to reach $40bn which gives say $60, so weighted average price target of
    $72. $72 discounted over four years at say 4% risk free (for how-long?) + 6% equity risk premium x a whoopy 1.6 beta (total 13.6%) gives a NPV of $43 or 16% upside.

    I pass.

    Alphahunter / Alphatracker

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    • $50Bn really means nothing unless we know where the dollar stands in 5 years. They could be selling the same amount of equipment as this year and if the dollar declines they could easily sell $50B unfortunately they won't necessarily make anymore money. Someone should have asked him his assumptions on the dollar in regards to the $50Bn sales figure.

      • 2 Replies to lottaleverage
      • "$50Bn really means nothing unless we know where the dollar stands in 5 years."

        Great comment. I would assume he means $50B in today's dollars by that time (2014), which may be $60-70B in depreciated dollars. That would mean $50B in 2011-12, IMO.

      • alphahunter Jun 11, 2009 5:00 PM Flag

        You're right and this is a helicopter view.
        They take each region by region, look at the need for infrastructure, expected GDP, public and private anticipated investment, source of finance, share of the market etc,.. and they get a number probably +/-15% at constant currency.
        This a very useful macro-approach IMO.
        Now I suspect that some people here are expecting too much and too quickly, e.g. we will get 2008's worldwide GDP in 2011, so here we go, $80 for 2011. They forget the used equipment/second-hand market, stock in the channel and second derivative of the end market.
        So $70-80 in 2013 not in 2011 IMO.
        That's a back of the envelop calculation, no time for a more refined approach.
        Now on the conf call replay of Brown-Forman.

    • I think this is an under promise, over deliver statement. No other reason to make such a lame forecast.

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