Earnings Beat In The Cards For Caterpillar Stock?

Caterpillar (NYSE: CAT) will report its Q2 2023 results on Tuesday, Aug 1. We expect the company’s revenues to come in at $16.8 billion, above the consensus estimate of $16.5 billion. This would mark year-over-year growth of about 18%. Earnings will likely come in at about $4.72 on a per-share and adjusted basis, comfortably above the $4.58 consensus estimate. See our interactive dashboard analysis on Caterpillar’s Earnings Preview for more details on how the company’s revenues and earnings will likely stand for the quarter. So, what are some of the trends that are likely to drive Caterpillar’s results?

The company will likely continue to benefit from a strong pricing environment and robust demand for resources and energy equipment. However, elevated costs and forex headwinds may weigh on the company’s overall performance. Looking at Q1 2023, Caterpillar’s revenues were up 17%, led by a 14% rise in price realization and about a 4% rise in total sales volume.

Looking at the bottom line, Caterpillar reported $4.91 earnings per share on an adjusted basis in Q1, compared to a $2.88 figure in the prior-year quarter. The company’s operating margin expanded 350 bps to 17.2% in Q2. With a robust demand outlook and strong pricing trends, Caterpillar will likely see its operating margin expand in the near term.  Our Caterpillar’s Operating Income Comparison dashboard has more details.

Looking at CAT stock price, we believe that it is appropriately priced. We estimate Caterpillar’s valuation to be $251 per share, slightly below its current price of $260. At its current levels, CAT stock is trading at a little over 14x its forward estimated earnings of $18.10 in 2023, marginally below its last three-year average of 15x, implying that the stock is fully valued. That said, if the company reports upbeat results and raises its 2023 outlook, the P/E multiple will likely be revised upward, resulting in higher levels for CAT stock.