Morningstar

Caterpillar Earnings: ‘No One Is Slowing Down’

We’ve raised our fair value estimate of Caterpillar stock.

The CAT logos are displayed on Caterpillar heavy-duty machinery.
Artur Widak/NurPhoto via Getty
Securities in This Article
Caterpillar Inc
(CAT)

Key Morningstar Metrics for Caterpillar

  • Fair Value Estimate
    : $720.00
  • Morningstar Rating
    : ★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : Medium

What We Thought of Caterpillar’s Earnings

Caterpillar CAT delivered yet another dominant performance this quarter, with sales up 24% to a company record of $20.5 billion. Adjusted operating profit grew 54% to $4.5 billion, and earnings per share grew 73% to $8.17. The company boosted its sales outlook to mid- to high-teens growth.

Why it matters: The performance was impressive across the board. While power and energy have dominated the narrative around Caterpillar in recent quarters, the more “cyclical” segments posted stronger growth.

  • Construction Industries grew 35% to $8.3 billion, and margins expanded 320 basis points to 23.3%, with strong volume and pricing. North America grew 50%. Specifically, management highlighted plans to expand its equipment rental business through its dealers to meet booming demand for megaprojects in North America.
  • Resource Industries grew 20% to $4.6 billion, and margins ticked up 40 basis points to 14.9%. Rising demand for copper and gold, as well as for aggregates for general construction, was a driver.

Long view: The data-center-driven opportunity remains staggering. The segment grew 17% to $8.2 billion, and margins expanded 250 basis points to 24.6%. The power generation segment grew by 29%, and CEO Joe Creed said on the call about demand for artificial intelligence, “no one is slowing down at the moment.”

  • The company elaborated on opportunities in both backup and primary power generation. Even as they add capacity, they are already taking orders into 2029 and 2030. We were particularly impressed that the company repurposed a formerly shuttered marine engine plant to meet demand.

The bottom line: We are increasing our fair value estimate for wide-moat Caterpillar to $720 per share from $680, driven by improved guidance and the time value of money.

  • The shares have pulled back recently as a prominent short seller has taken a position against the company, and we concede that our valuation contemplates tremendous growth.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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