Caterpillar Inc. Named Top Dividend Stock

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Based in Peoria, Ill., Caterpillar is the world’s largest manufacturer of heavy construction machinery such as bulldozers, excavators, and loaders and equipment for surface and underground mines. The firm also produces engines for its own off-highway vehicles and others’ machines. Cat supports its machinery and engine revenue with a financial services arm, a logistics business, and remanufacturing service work.

Sector: Conglomerates                                                           Industry: Conglomerates

Highlights:

 

Caterpillar is the largest heavy equipment manufacturer in the world and holds an especially dominant share in the U.S. market. The stock closed yesterday’s trading session at $83.16. In the past year, the stock has hit a 52-week low of $78.25 and 52-week high of $116.95. Technical indicators for the stock are Neutral.

GROWTH AND BALANCE SHEET

The company’s annual earnings growth rate over the past five years is 7.40% gives us a neutral feeling. CAT’s EPS growth for this quarter relative to the same quarter a year earlier is 67.10% a very impressive figure. The company reported strong sales of construction equipment in the US. Caterpillar Inc improved its forward-looking estimates for annual profit per share for 2012, to $9.60 from $9.50. The total Debt/Equity of 246% makes us feel very uncomfortable.

VALUATION

CAT has a market cap of $54 billion is the world’s largest manufacturer of heavy construction machinery. Caterpillar has kick started 2012 by posting record earnings per share (EPS) of $2.37 in the first quarter. The P/E of 9.3 is heavily depressed and below the industry average, makes the stock attractive. The stock is currently trading 33% below its fair value leaving plenty of upside potential. The beta of 1.79 implies high volatility of the stock with respect to the S&P 500. The firm has had generally very high debt risk by most measures that we evaluated.

RECOMMENDATION for next 6 months: We initiate our coverage with START BUYING. The company has demonstrated a pattern of neutral technical signs and positive fundamental performance. We believe it offers a low risk-reward scenario versus its competitors. We believe that the top line will continue to grow on the back of increasing demand for construction and mining equipment. Shares are down 8.07% year to date as of the close of trading on yesterday.

For trading we suggest a long call at $85 for the December expiration.

		CAT
VALUATION				CAT STOCK
Market Cap:	54,54B			Beta	1,79
Enterprise Value	91,86B			1 Month Stock Returns	-4,37%
P/E	9,33			Year to Date Stock Returns	-8,07%
PEG Ratio	0,64			1 Year Stock Returns	5,26%
Price/Sales	0,83			3 Year Stock Returns	55,28%
Price/Book	3,48			52-Week Change	3,73%
Enterprise Value/Revenue	1,39			S&P500 52-Week Change	20,57%
Enterprise Value/EBITDA	8,04			52-Week High	116,95
Dividend Yield	0,99%			52-Week Low	78,25
				50-Day Moving Average	87,67
Held by insiders	0,22%			200-Day Moving Average	90,85

 

NEWS and CALENDAR

Monday, October 22, 2012 – Caterpillar Inc. to Announce Third-Quarter 2012 Financial Results on October 22

Tuesday, October 9, 2012 Caterpillar Inc. (CAT), the world’s largest manufacturer of construction and mining equipment, has implemented a price increase of up to 3% on most of its machines across the world, citing current industry factors and general economic conditions as the reasons. This price increase will be effective January 2013 and includes adjustments to list prices and merchandising support.

Monday, October 8, 2012 – The Board of Directors of Caterpillar Inc. (NYSE: CAT) voted today to maintain the quarterly cash dividend of fifty-two cents ($0.52) per share of common stock, payable November 20, 2012, to stockholders of record at the close of business, October 22, 2012.

Thursday, September 27, 2012 – Fitch Ratings believes a softening outlook for heavy equipment sales to the global mining and construction industries could eventually lead to moderately weaker credit metrics for Caterpillar Inc. (CAT) and could potentially have the same effect on other companies with similar exposure to these industrial customers.

 

CAT Strengths

• Robust revenue growth
• Presence in China
• International diversification of sales
• Increasing demand in the developing World
• Global Market Leader

 

CAT Weakness

• High debt/equity
• Declining US housing construction

 

 

Competitor Comparison
	CAT	CNH	KMTUY	VOLVY	Industry
Market Cap:	54.33B	9.44B	18.19B	27.76B	125.84M
Employees:	132,825	32,7	44,206	100,941	1.68K
Qtrly Rev Growth (yoy):	0.22	0.02	-0.05	0.06	0.08
Revenue (ttm):	66.31B	20.12B	25.01B	48.59B	523.71M
Gross Margin (ttm):	0.27	0.24	0.27	0.24	0.29
EBITDA (ttm):	11.42B	2.79B	4.33B	4.77B	30.40M
Operating Margin (ttm):	0.13	0.12	0.13	0.08	0.06
Net Income (ttm):	5.97B	1.09B	1.83B	2.62B	N/A
EPS (ttm):	8.94	4.53	1.91	1.29	N/A
P/E (ttm):	9.30	8.64	10.00	10.58	15.72
PEG (5 yr expected):	0.64	0.78	-2.46	1.32	0.88
P/S (ttm):	0.82	0.47	0.73	0.57	1.23

 

Stock valuation model

The model rates stocks from 1 to 10, with 10 being the best using a system of advanced mathematics to determine a stock’s expected risk and return. I am using different fundamental and technical factors in order to rank a stock.

Intrinsic value of the stock

Investors should buy stocks selling at a discount to their intrinsic value, and then patiently wait for the fair value of their investments to be realized.

CAT’S intrinsic value is $111.00 the current price is $83.16, that gives us a possible upside of 33%.

Financials

The financial health of the company the higher the better

Sentiment

Investor’s sentiment for the stock

Analyst ratings

The model assigns a value according to analyst’s recommendation for the stock.

Earnings Consistency

According to this model, each year’s EPS numbers should be better than the previous year’s. One dip is allowed, but the following year’s earnings should be a new high. DE, annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 5.37, 5.66, 1.43, 4.15, 7.40, this type of earnings action is positive beside the one dip.

Total Debt/Equity

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry

CAT’s Total Debt/Equity of 246.80% is well below our acceptable level.

Quarterly EPS Change (This Quarter VS. Same Quarter Last Year)

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 18% that this model likes to see for a “good” growth company.

CAT’s EPS growth for this quarter relative to the same quarter a year earlier is 67.11 well above our target.

Annual Earnings Growth

This model looks for annual earnings growth above 12%, but prefers higher than 20%.

CAT’s annual earnings growth rate over the past five years is 7.40%, is below our target growth.

Current Price Level

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend.

CAT’s 52 week high is $116.95 current price is $83.16 is 40% below the high.

P/E Ratio

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be “moderate”, which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature.

The company has a P/E ratio of 9.30 below the average industry P/E ratio is 15.72 and well below the S&P 500 P/E ratio of 15.30

Insider Ownership

When there is strong insider ownership which I define as 12% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.

Insiders own only 0.22% of CAT stock. Management’s representation is not large enough. This does not satisfy the minimum requirement, and companies that do not pass this test are less attractive.

Technical Analysis

I am using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

Our indicators give a neutral view on CAT

 

Highlights:

 

Caterpillar is the largest heavy equipment manufacturer in the world and holds an especially dominant share in the U.S. market. The stock closed yesterday’s trading session at $83.16. In the past year, the stock has hit a 52-week low of $78.25 and 52-week high of $116.95. Technical indicators for the stock are Neutral.

GROWTH AND BALANCE SHEET

The company’s annual earnings growth rate over the past five years is 7.40% gives us a neutral feeling. CAT’s EPS growth for this quarter relative to the same quarter a year earlier is 67.10% a very impressive figure. The company reported strong sales of construction equipment in the US. Caterpillar Inc improved its forward-looking estimates for annual profit per share for 2012, to $9.60 from $9.50. The total Debt/Equity of 246% makes us feel very uncomfortable.

VALUATION

CAT has a market cap of $54 billion is the world’s largest manufacturer of heavy construction machinery. Caterpillar has kick started 2012 by posting record earnings per share (EPS) of $2.37 in the first quarter. The P/E of 9.3 is heavily depressed and below the industry average, makes the stock attractive. The stock is currently trading 33% below its fair value leaving plenty of upside potential. The beta of 1.79 implies high volatility of the stock with respect to the S&P 500. The firm has had generally very high debt risk by most measures that we evaluated.

RECOMMENDATION for next 6 months: We initiate our coverage with START BUYING. The company has demonstrated a pattern of neutral technical signs and positive fundamental performance. We believe it offers a low risk-reward scenario versus its competitors. We believe that the top line will continue to grow on the back of increasing demand for construction and mining equipment. Shares are down 8.07% year to date as of the close of trading on yesterday.

For trading we suggest a long call at $85 for the December expiration

		CAT
VALUATION				CAT STOCK
Market Cap:	54,54B			Beta	1,79
Enterprise Value	91,86B			1 Month Stock Returns	-4,37%
P/E	9,33			Year to Date Stock Returns	-8,07%
PEG Ratio	0,64			1 Year Stock Returns	5,26%
Price/Sales	0,83			3 Year Stock Returns	55,28%
Price/Book	3,48			52-Week Change	3,73%
Enterprise Value/Revenue	1,39			S&P500 52-Week Change	20,57%
Enterprise Value/EBITDA	8,04			52-Week High	116,95
Dividend Yield	0,99%			52-Week Low	78,25
				50-Day Moving Average	87,67
Held by insiders	0,22%			200-Day Moving Average	90,85

 

NEWS and CALENDAR

Monday, October 22, 2012 – Caterpillar Inc. to Announce Third-Quarter 2012 Financial Results on October 22

Tuesday, October 9, 2012 Caterpillar Inc. (CAT), the world’s largest manufacturer of construction and mining equipment, has implemented a price increase of up to 3% on most of its machines across the world, citing current industry factors and general economic conditions as the reasons. This price increase will be effective January 2013 and includes adjustments to list prices and merchandising support.

Monday, October 8, 2012 – The Board of Directors of Caterpillar Inc. (NYSE: CAT) voted today to maintain the quarterly cash dividend of fifty-two cents ($0.52) per share of common stock, payable November 20, 2012, to stockholders of record at the close of business, October 22, 2012.

Thursday, September 27, 2012 – Fitch Ratings believes a softening outlook for heavy equipment sales to the global mining and construction industries could eventually lead to moderately weaker credit metrics for Caterpillar Inc. (CAT) and could potentially have the same effect on other companies with similar exposure to these industrial customers.

 

DE Strengths

• Robust revenue growth
• Presence in China
• International diversification of sales
• Increasing demand in the developing World
• Global Market Leader

 

DE Weakness

• High debt/equity
• Declining US housing construction

 

 

Competitor Comparison
	CAT	CNH	KMTUY	VOLVY	Industry
Market Cap:	54.33B	9.44B	18.19B	27.76B	125.84M
Employees:	132,825	32,7	44,206	100,941	1.68K
Qtrly Rev Growth (yoy):	0.22	0.02	-0.05	0.06	0.08
Revenue (ttm):	66.31B	20.12B	25.01B	48.59B	523.71M
Gross Margin (ttm):	0.27	0.24	0.27	0.24	0.29
EBITDA (ttm):	11.42B	2.79B	4.33B	4.77B	30.40M
Operating Margin (ttm):	0.13	0.12	0.13	0.08	0.06
Net Income (ttm):	5.97B	1.09B	1.83B	2.62B	N/A
EPS (ttm):	8.94	4.53	1.91	1.29	N/A
P/E (ttm):	9.30	8.64	10.00	10.58	15.72
PEG (5 yr expected):	0.64	0.78	-2.46	1.32	0.88
P/S (ttm):	0.82	0.47	0.73	0.57	1.23

 

Stock valuation model

The model rates stocks from 1 to 10, with 10 being the best using a system of advanced mathematics to determine a stock’s expected risk and return. I am using different fundamental and technical factors in order to rank a stock.

Intrinsic value of the stock

Investors should buy stocks selling at a discount to their intrinsic value, and then patiently wait for the fair value of their investments to be realized.

CAT’S intrinsic value is $111.00 the current price is $83.16, that gives us a possible upside of 33%.

Financials

The financial health of the company the higher the better

Sentiment

Investor’s sentiment for the stock

Analyst ratings

The model assigns a value according to analyst’s recommendation for the stock.

Earnings Consistency

According to this model, each year’s EPS numbers should be better than the previous year’s. One dip is allowed, but the following year’s earnings should be a new high. DE, annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 5.37, 5.66, 1.43, 4.15, 7.40, this type of earnings action is positive beside the one dip.

Total Debt/Equity

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry

CAT’s Total Debt/Equity of 246.80% is well below our acceptable level.

Quarterly EPS Change (This Quarter VS. Same Quarter Last Year)

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 18% that this model likes to see for a “good” growth company.

CAT’s EPS growth for this quarter relative to the same quarter a year earlier is 67.11 well above our target.

Annual Earnings Growth

This model looks for annual earnings growth above 12%, but prefers higher than 20%.

CAT’s annual earnings growth rate over the past five years is 7.40%, is below our target growth.

Current Price Level

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend.

CAT’s 52 week high is $116.95 current price is $83.16 is 40% below the high.

P/E Ratio

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be “moderate”, which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature.

The company has a P/E ratio of 9.30 below the average industry P/E ratio is 15.72 and well below the S&P 500 P/E ratio of 15.30

Insider Ownership

When there is strong insider ownership which I define as 12% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.

Insiders own only 0.22% of CAT stock. Management’s representation is not large enough. This does not satisfy the minimum requirement, and companies that do not pass this test are less attractive.

Technical Analysis

I am using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

Our indicators give a neutral view on CAT