Shares of Caterpillar CAT have soared nearly 54% over the last year, which might cause some investors to think that the construction and mining equipment powerhouse’s stock is expensive. But that doesn’t appear to be the case at all. Let’s dive into Caterpillar’s recent price movement and growth projections to help show why CAT is currently a strong buy stock that also presents strong value.
Recent Price Movement
Caterpillar stock has skyrocketed 116% over the last two years. CAT’s performance crushes the S&P 500’s 33% surge, while also slightly outpacing its industry’s similarly massive gains—which is not shocking since Caterpillar has long been an industry and an economic bellwether. Meaning that, when CAT performs well, the “Manufacturing - Construction and Mining” industry tends to follow, and vice versa. Caterpillar’s peers include H&E Equipment HEES, Terex Corporation TEX, and The Manitowoc Company MTW.
Caterpillar stock is down slightly over the last four weeks. This means, right off the bat, its stock price is technically cheaper than it was not so long ago. In fact, CAT stock currently sits roughly 11% below its 52-week high, making it attractive in the sense that it still has a decent amount of room to climb before it must break into a new range.
Another highly important factor to consider when thinking about buying CAT stock is what the company’s current valuation picture looks like. Despite Caterpillar’s insane two-year growth, the firm is trading at an earnings multiple well below the S&P 500 average.
Coming into Thursday, Caterpillar was trading at 13.9X forward 12-months earnings estimates, while the index rested at 17X. Over the last two years, CAT stock has traded as high as 32.6X—a figure it hit in January 2017. The stock has also traded as low as 13X, which it reached earlier this month. Meanwhile, CAT has traded at a median of 22.6X over the last two years and 18.9X over the last year.
The lowest Caterpillar has traded at over the last five years was 11.1X, all the way back in June 2013. With that said, CAT stock has traded at its lowest earnings multiples over the last three years, all within that last month.
Therefore, investors should be able to say with some degree of confidence that Caterpillar stock is rather attractive at its current valuation, if not flat-out cheap.
Now, let’s take a look at Caterpillar’s current growth projections that help make its valuation look so great at the moment.
Our current Zacks Consensus Estimates are calling for Caterpillar’s second quarter revenues to hit $13.6 billion, which would mark a 20% climb from the year-ago period. For the full-year, the company’s revenues are projected to surge by nearly 17% to hit $53.16 billion. These top-line growth estimates aren’t directly reflected in Caterpillar’s current stellar forward P/E, but this revenue expansion looks ready to help the company’s bottom line climb.
Caterpillar’s Q2 earnings are projected to soar by nearly 76% to reach $2.62 per share. Looking a bit further down the road, the company’s full-year earnings are expected to reach $10.58 per share. This would mark 53.8% expansion.
CAT has also earned eight earnings estimate revisions for Q2, with 100% agreement to the upside, all within the last 30 days. Meanwhile, the company has received 10 revisions during this same timeframe, against zero downward revisions.
Lastly, Caterpillar is currently a Zacks Rank #1 (Strong Buy) and sports “B” grades for Value, Growth, and Momentum in our Style Scores system.
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Terex Corporation (TEX) : Free Stock Analysis Report
Caterpillar Inc. (CAT) : Free Stock Analysis Report
The Manitowoc Company, Inc. (MTW) : Free Stock Analysis Report
H&E Equipment Services, Inc. (HEES) : Free Stock Analysis Report
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