I picked up shares of CAT today at $100. My top reasons are robust revenue growth, high rates of return on equity, and good growth in net income. CATs revenue growth rose by 34.6% since the same quarter one year ago. CAT seems valued at a discount with a PEG value of 0.5752, one of the lowest in the Constr. & Agric. Machinery industry.
CAT has shown a consistent pattern of positive earnings growth over the past two years. During the past fiscal year CAT has increased the bottom line from $4.14 to $7.39.
CAT is selling for less than other in its industry according to The Street. Credit Suisse has a $138 price target. From Credit Suisse’s most recent report:
For 2012, dealers forecast sales up 15-20%, consistent with last quarter, driven by replacement demand. Still, 60% of dealers implied CYQ1’12 was trending ahead of expectations. Also encouraging, housing is on the path to recovery coupled with some pockets of strength in comm’l construction and infrastructure (except military). Large engines remain on fire tied to strength in power gen and oil & gas.
Market share is up and S&P Capital IQ expectes revenues to rise 19% in 2012, following a 41% rise in 2011.
Background: Caterpillar’s trademark yellow machines are in nearly every country in the world, with 65% of product sales derived outside of North America in 2011 (64% in 2010). CAT previously operated in three lines of business: Machinery, Engines and Financial Products. However, in 2011, it shifted its segment breakup to Construction Industries (33% of revenues and 21% of operating profit in 2011), Resource Industries (26%; 34%), Power Systems (33%; 31%), Other (3%; 8%), and Financial Products (5%; 6%).
With 65% of its sales outside the US, CAT is a world recovery play. CAT’s dealer network, which employs more people and has more assets than CAT itself, as a significant competitive advantage. As of year-end 2010 (latest available), 73% of CAT’s independent dealers were located outside of the U.S.
10 years trend through 2011, CAT recorded compound annual growth rates (CAGRs) of 11.4% for revenues and 21.0% for earnings per share. The company also generated a 18.3% return on invested capital (ROIC) in 2011 (before one-time items), which exceeded its 9.5% weighted average cost of capital as of January 2012.
This is a long term buy and hold. I also own CAT in my retirement account. It currently yields 1.74%.