Caterpillar, Inc. (CAT), Good Long Term Prospects

Caterpillar Inc. (CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company is a member of the dividend achievers index, and has boosted distributions for 19 years in a row.

Business

The key factors behind Caterpillar’s long term growth include construction activity in the world’s emerging economies, government spending on infrastructure, as well as growth in the global economy. Strategic acquisitions, such as the purchase of Bucyrus, are expected to bring massive synergies in terms of purchasing and engineering as well as the potential to bring in more business.

Caterpillar do have heavy exposure to China. It has the ‘double whammy’ effect of being exposed to China’s fixed asset investment. This morning, a report shows that Chinese manufacturing grew in November, offering a bit of bright news for the company.

 Financials

Financials
EPS 9.760
EPS Est. Current Year 9.100
EPS Est. Next Year 8.690
EPS Est. Next Quarter 1.840
Forward EPS  
Book Value (p.s.) 27.350
PEG Ratio 0.68
Profit Margin 9.74
Operating Margin 13.93
Return on Assets (ttm) 6.9
Return on Equity (ttm) 40.3
Qtrly Rev. Growth 4.6
Gross Profit (p.s.) 24.055
Sales Per Share 102.519
EBITDA (p.s.) 18.504
Qtrly Earnings Growth 48.90
Operating Cash Flow (M) 4760.00
Levered Free Cash Flow (M) 2650.00

 

In America sales of CAT equipment and machinery rose 9% in the third quarter. U.S. companies in October increased their orders of machinery and equipment that signal investment plans by the largest amount in five months, a hopeful sign for future economic growth. The current P/E of 8.73 is at bargain basement historic lows, and lower than the P/E average of 11 for industrials. Since the company garners half of its operating profits from mining, we generally view  Caterpillar’s business prospects as lower risk.

The company’s last dividend increase was in June 2012 when the Board of Directors approved a 13% increase to 52 cents/share.Over the past decade this dividend growth stock has delivered an annualized total return of 19.30% to its shareholders. 

Technicals

 Shares of Caterpillar are currently trading at $85.26 with the market $55 billion. It has a 52- week low of $378.25 and a 52-week high of $116.95. From a technical standpoint, this stock is currently trading above its 20-day MA of 84.29 and below its 250-day MA of $93.04. It has been showing support around $80.16 and resistance in the $88.01 price range. MACD (12,26) and RSI(14) are  increasing. The overall technical indicator shows a buy with the $102.79 target price in short term.

Conclusion

 Currently Caterpillar is attractively valued, trading at 8.73 times earnings and yielding 2.50%. The long-term prospects are better as developing nations clamor for mined commodities.

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