So CAT has 17.5 bn in equity on the books, 4.5 bn is from their financial division, 11 is goodwill and intangibles, and the remaining 2 is tangible equity in the core business (making goop). Assuming that the first two should trade at 1x book value (at best), implies that the remaining core business is trading at around 19x tangible equity. That seems excessive to me. A 10x would be the max. Too much goodwill imo which could get written down.
Looking at their EPS it seems a lot of growth is due to a) increased leverage and b) having cat financial issue debt and make loans to make sales - i think recognizing sales by virtue of another division financing the custy to buy it is GAAP fine but not exactly up n up....i am sure everyone does it and its a product of the Fed's policy....dance while the music plays....
I don't think CAT offers value here - maybe at $60 or below - we'll see
I did some quick checks on Fast Graphs. CAT has an average PE=15.8 the last 15 years. It current has a PE=12.2. If it hits its normal PE, it will be $100 a share. If you assume 6% earnings growth & use this in a PEG ratio & multiply by 15, the share price should be $95. All these estimates are through end of 2014.
It's not huge potential. But it seems safe enough. Moreover, the above numbers also don't factor in dividend reinvestment.
The debt is an interesting issue. Most of it is indeed tied to lending to customers to finance CAT sales. I remember reading that most of this debt was owned by governments. The probability of default should be low...as should be the probability of a global recession...albeit the current shutdown & debt ceiling crises give me pause here.
In summary, I think we have slightly cheap value here. But I also look at it from another angle. Right now construction globally seems stagnant. The Indian & Chinese economies seem to in temporary stasis. This cannot continue. Additionally, I read analysis where the earth's mantle & crust contain commodities to keep us going tens of thousands of years...commodities which require extraction & processing.
Net cash from Operations = $3.25bn: net of inventory impact
Net cash used Investment $2.8bn: so 1.8bn+ to finance custy purchases
684mn in divs: They paid div in Dec '12 early
= - 200mn
Does not look like they are generating a ton cash flow....given leverage and debt