Caterpillar Inc (NYSE:CAT): Is It A Good Long Term Opportunity?

In December 2017, Caterpillar Inc (NYSE:CAT) released its most recent earnings announcement, which signalled that the business turned profitable again after incurring losses in the previous financial year. Investors may find it useful to understand how market analysts view Caterpillar’s earnings growth outlook over the next few years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings. See our latest analysis for Caterpillar

Market analysts’ prospects for the upcoming year seems optimistic, with earnings growth more than doubling. Earnings continue to grow strongly in the next couple of years, finally arriving at US$6.64B in 2021.

NYSE:CAT Future Profit Mar 7th 18
NYSE:CAT Future Profit Mar 7th 18

Although it is useful to be aware of the growth each year relative to today’s figure, it may be more insightful to gauge the rate at which the earnings are growing on average every year. The advantage of this approach is that it removes the impact of near term flucuations and accounts for the overarching direction of Caterpillar’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 19.10%. This means, we can anticipate Caterpillar will grow its earnings by 19.10% every year for the next couple of years.

Next Steps:

For Caterpillar, there are three essential aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is CAT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CAT is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CAT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!