Posted on November 28, 2018
It is interesting to see the consensus price for analysts who follow this stock to be at $156 per share. Morningstar which also covers this stock has a fair value of $186. Incidentally, the share price at present is trading at just below $123 a share.
The optimism in Caterpillar (CAT) is coming from recent top and bottom line growth which has been impressive. In the company’s latest quarter, sales rose by 18% to hit $12.7 billion. Earnings per share rose by 62% to hit $2.88 per share. These numbers obviously led to the announcement of $750 million worth of share buybacks and a pension fund contribution of $1 billion. Furthermore, GAAP earnings guidance for 2018 was raised slightly which added to bullish sentiment. What possibly could go wrong, I can hear you thinking.
The question is how much of this potential growth is priced into the shares. Caterpillar at present looks like it will easily hit its projected bottom line of $12.84 in 2019 when one views the present growth across the 3 manufacturing divisions. However, when everybody is thinking the same way, then nobody is thinking. Therefore, it is always beneficial to research the other side to see if the risks outweigh the bullish arguments. Then and only then, can an investor truly make an informed decision.
Source: Seeking Alpha
