CAT
Caterpillar Inc.
$894.50
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 54.9% above fair value
You pay
$894.50
Bear
$467.38
Fair
$577.35
Bull
$687.32
Bear
$467.38
-47.7%
$18.83 × 20x + net cash
Fair
$577.35
-35.5%
$18.83 × 24x + net cash
Bull
$687.32
-23.2%
$18.83 × 28x + net cash
Key Value Driver
Through-cycle normalized EPS ($18.83)
Implied Market Multiple
47.5x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $915.20 from 56 analysts, using a 35% weight on analyst consensus. That produces an estimated intrinsic value of $577.35 per share.
Warnings
This company has a built-in lending arm whose debt is mixed in with the main business. We capped the debt adjustment to avoid overstating what the core business owes.
Price-to-book value of 26.2x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Wall Street's average price target is $915.20 (from 56 analysts). Our estimate is 57% below the consensus -- consider that gap carefully.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing