Construction and mining equipment manufacturer Caterpillar Inc. (CAT) recently witnessed one of the best years in its nearly 100-year history. For the full year of 2022, the company’s sales came in at $59.40 billion, up 17% over the previous year. The growth reflected favorable price realization and higher sales volume, driven by a surge in dealer inventories, increased services, and strong equipment sales to end users.

CAT’s adjusted profit per share in 2022 was $13.84, an increase of 28% over the previous year. Also, the company’s enterprise operating cash flow was $7.80 billion. Moreover, liquidity remained strong, with an enterprise cash balance of $7 billion at the end of 2022.

Caterpillar Chairman and CEO Jim Umpleby said, “We remain committed to serving our customers, executing our strategy and investing for long-term profitable growth.”

On January 6, 2023, CAT announced an investment in Lithos Energy, Inc., a U.S.-based battery technology company that produces lithium-ion battery packs, to further battery pack development and manufacturing. This deal is expected to accelerate the advancement of CAT’s electrified product portfolio.

Also, on December 15, 2022, CAT collaborated with Luck Stone, the nation’s leading family-owned and operated producer of crushed stone, sand, and gravel, to deploy CAT’s autonomous solution to Luck Stone’s Bull Run Plant in Chantilly, Virginia.

This marks Caterpillar’s first autonomous deployment in the aggregates industry and is expected to expand the company’s autonomous truck fleet to include the 100-ton-class Cat® 777.

During the past year, the company returned nearly $6.7 billion to shareholders through share repurchases and dividends. On December 14, CAT’s Board of Directors announced a quarterly dividend of $1.20 per share of common stock, payable on February 17, 2023.

The company has raised its dividend for 29 consecutive years. CAT’s annual dividend of $4.80 yields 1.93% on the current share price. Its dividend payouts have increased at a 6% CAGR over the past three years and an 8.7% CAGR over the past five years.

Shares of CAT have gained 33.9% in price over the past six months and 23.5% over the past year to close the last trading session at $248.87. The stock is currently trading 6.5% below its 52-week high of $266.04, which it hit on January 27, 2023.

Here’s what could influence CAT’s performance in the upcoming months:

Robust Financials

For the fiscal 2022 fourth quarter ended December 31, CAT’s total sales and revenues increased 20.3% year-over-year to $16.60 billion, while sales of Machinery, Energy & Transportation were $15.87 billion, an increase of 21.2% year-over-year. The company’s operating profit was $1.68 billion, up 4.3% year-over-year.

Also, CAT’s adjusted profit per share was $3.86, compared to $2.69 in the previous year’s quarter. For the year ended December 31, 2022, cash inflows from operating activities were $7.77 billion, up 7.9% year-over-year.

Favorable Analyst Expectations

Analysts expect the CAT’s revenue for the fiscal year (ending December 2023) to increase 6.4% year-over-year to $63.23 billion. The consensus EPS estimate of $15.88 for the current year indicates a 14.8% year-over-year increase. Moreover, the company has topped the consensus revenue and EPS estimates in three of the trailing four quarters.

Furthermore, the company’s revenue and EPS for the next fiscal year (ending December 2024) are expected to grow 3.4% and 7.9% year-over-year to $65.36 billion and $17.13, respectively.

High Profitability

CAT’s trailing-12-month EBITDA margin of 18.55% is 40.9% higher than the 13.17% industry average. Likewise, its trailing-12-month net income margin of 11.28% compares with the industry average of 6.43%. Moreover, the stock’s trailing-12-month levered FCF margin of 4.94% is 55.8% higher than the 3.17% industry average.

In addition, CAT’s trailing-12-month ROCE, ROTC, and ROTA of 41.45%, 10.20%, and 8.18% compare to the industry averages of 13.94%, 6.76%, and 5.20%, respectively. The stock’s trailing-12-month CAPEX/Sales of 4.37% is 48.3% higher than the 2.95% industry average.

POWR Ratings Reflect Promising Prospects

CAT’s POWR Ratings reflect a strong outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CAT has a grade of B for Growth, consistent with its solid financials and favorable analyst estimates.

In the 82-stock A-rated Industrial – Machinery industry, it is ranked #11.

Click here to see the additional POWR Ratings for CAT (Sentiment, Momentum, Value, Stability, and Quality). View all the top stocks in the Industrial – Machinery industry here.

Bottom Line

Despite supply chain challenges, CAT delivered double-digit top-line growth and generated strong ME&T free cash flow in 2022. The company continues to benefit from solid demand across its end markets, strategic partnerships and investments, and increased federal infrastructure spending across the nation.

The stock is currently trading above its 50-week high and 200-week high of $243.51 and $208.39, respectively, indicating an uptrend. Given its robust financials, promising growth prospects, high profitability, and attractive dividends, investors could consider adding this industrial machinery stock to their watchlist now.

How Does Caterpillar Inc. (CAT) Stack up Against Its Peers?

While CAT has an overall POWR Rating of B, one might consider looking at its industry peers with an overall A (Strong Buy) rating, ABB Ltd. ADR (ABB), Donaldson Company, Inc. (DCI), and THK CO., LTD. (THKLY).

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CAT shares were trading at $250.72 per share on Thursday morning, up $1.85 (+0.74%). Year-to-date, CAT has gained 5.16%, versus a 7.60% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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