Will Caterpillar stock rise after fourth quarter results?

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Caterpillar (NYSE: CAT) is expected to report its fourth quarter 2022 results on Thursday, January 26. We expect CAT stock to trade lower after the fourth quarter, with revenue and earnings falling below consensus estimates. While a strong pricing environment and strong demand for equipment for the resource and energy industries are likely to drive the company’s revenue growth, overall performance could be depressed due to supply chain disruptions and unfavorable currency exchange rates. Our forecast also indicates that CAT stocks are priced correctly, as discussed below. Our interactive dashboard analysis of Overview of Caterpillar’s earnings has additional details.

(1) Expected earnings will be below consensus estimates

  • Trefis estimates Caterpillar’s
    CAT
    Revenue in the fourth quarter of 2022 will be approximately $15.7 billion, reflecting 14% yoy growth, but below the consensus estimate of $16.1 billion.
  • All Caterpillar segments have experienced steady growth in recent quarters, a trend that is expected to continue in the fourth quarter, driven by strong end-user demand and a robust pricing environment.
  • However, supply chain disruptions and currency headwinds may have weighed on overall revenue growth.
  • Looking back to the third quarter of 2022, total revenue grew 21% yoy to $15.0 billion, with gains across all of the company’s businesses.
  • The Resource Industry segment led the growth, with revenue up 30%, while Energy & Transportation revenue grew 22%.
  • Our dashboard on Caterpillar’s earnings provides more details about the company’s segments.

(2) EPS is likely to be below consensus estimates

  • Caterpillar’s adjusted earnings per share (EPS) for the fourth quarter of 2022 is expected to be $3.90 according to Trefis analysis, versus the consensus estimate of $4.02. This compares to the $2.69 figure the company reported in the previous quarter.
  • Caterpillar’s adjusted net income of $2.1 billion in the third quarter of 2022 reflected a significant increase of 43% yoy, compared to $1.5 billion in the same quarter last year.
  • Higher revenues and a 280 basis point increase in operating margins drove the net growth.
  • Looking ahead, we expect full-year 2023 adjusted earnings per share to be higher at $14.78, compared to $10.81 in 2021 and an estimated $13.91 in 2022.

(3) Stock fully priced

  • We estimate Caterpillar’s valuation approximately $251 per share, which equates to the current market price of $253.
  • This represents a forward P/E multiple of 17x based on our $14.78 EPS forecast for 2023, compared to the last three-year average of 18x.
  • If the company reports optimistic results, with revenue growth and 2023 outlook better than street estimates, the P/E multiple will likely be revised upwards, resulting in higher levels for CAT stocks.

While CAT stocks have more room for growth, it’s helpful to see how Caterpillar’s colleagues rate on metrics that matter. Other valuable comparisons for companies in different industries can be found at Peer comparisons.

In addition, the Covid-19 crisis has led to many price discontinuities which can provide attractive trading opportunities. For example, you might be surprised how counterintuitive stock valuation is Maritime products versus Tempur Sealy.

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