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CAT Details
Caterpillar Inc. (NYSE: CAT) is engaged in the business of manufacturing construction and mining equipment. It also develops diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives.
Robust Performance in Q2FY21 (For the Period Ended 30 June 2021)
Key Data (Source: Company Report)
Key Updates
Key Risks
The company’s operations are exposed to the risks of global and regional economic conditions. Further, changes in commodity price as well as rise in material price and fluctuations in its products demand may impact its financial results. Any significant shortages of material and currency fluctuations also remain potential risks.
Outlook
Higher sales and revenues across all regions and in its three primary segments in Q2FY21 demonstrate sustained enhancement in its end markets. Further, the company continues to focus on serving its customers as well as implementing its strategy and investing for future profitable growth. Additionally, it boasts a strong balance sheet. Overall, it has returned $0.8 billion to shareholders in Q2FY21 by way of dividends and share repurchases. CAT has enterprise cash of $10.8 billion at the end of Q2FY21.
Valuation Methodology: Price/Cash Flow Based Relative Valuation (Illustrative)
Stock Recommendation
CAT has delivered 3-months and 6-months returns of ~-7.81% and ~-10.65%, respectively. The stock is trading higher than the average of the 52-week high price of $246.58 and the 52-week low price of $142.73.
The stock has been valued using Price/Cash Flow Per Share multiple-based illustrative relative valuation and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to Price/ Cash Flow Per Share Multiple (NTM) (Peer Average), considering its lower current ratio that stood at 1.56x in Q2FY21 compared to the Industry Median at 2.14x and lengthy cash conversion cycle at 179.8 Days in Q2FY21 versus Industry Median at 95.0 days.
Considering the aforementioned factors, the current trading levels, and the associated business risks, we advise the investors to book profits. Hence, we give a “Sell” rating at the stock price of $205.74 per share, (9:45 AM New York, NY, USA Time), as of 14th September 2021.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Disclaimer
The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.