Caterpillar Sales To Trend Lower In Q3
Caterpillar (NYSE: CAT) will report its Q3 2024 results on Tuesday, October 29. We expect the company’s revenues to come in at $16.2 billion and adjusted earnings of $5.36 per share, broadly aligning with the consensus estimates. The company should see a decline in sales amid lower dealer inventory levels and overall weakness in demand. Our interactive dashboard analysis of Caterpillar’s FY 2024Q3 Earnings Preview has more details on the company’s revenues and earnings for the quarter.
What Trends Will Drive Caterpillar’s Results?
Caterpillar will have a tough comparison with the prior-year-quarter, which benefited from strong pricing growth and a robust demand environment. Pricing growth is expected to moderate in the near term. Caterpillar expects a slight decline in dealer inventory levels in 2024, compared to a $700 million rise in 2023, and this may have pulled its sales down in Q3. We forecast sales of around $16.1 billion, reflecting a 4% y-o-y decline. We don’t expect any meaningful improvement in operating margin, and its earnings to fall in the low single-digits y-o-y to $5.36 per share in Q3.
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How Did Caterpillar Fare In Q2?
Caterpillar’s revenue of $16.7 billion in Q2 was down 4% y-o-y. Looking at segments, the Construction Industries revenue was down 7%, Resource Industries sales were down 10%, while Energy & Transportation revenue was up 2%. Caterpillar saw its adjusted operating margin expand by 110 bps to 22.4% in Q2’24. The company’s bottom line stood at $5.99, compared to $5.55 in the prior-year quarter.
What About CAT Stock?
We think CAT stock is appropriately priced. We estimate Caterpillar’s valuation to be $357 per share, slightly lower than its current market price of around $385. Our forecast is based on a little over 16x P/E multiple for CAT and expected earnings of $22.14 on a per-share and adjusted basis for the full year 2024. The 16x P/E multiple aligns with the stock’s average P/E ratio over the last five years.
Despite the company facing headwinds, CAT stock has outperformed the broader markets, with 33% gains this year, vis-à-vis a 22% rise for the S&P 500 index. This can partly be attributed to the company’s upbeat earnings reported in Q1 and Q2. Notably, CAT is one of a handful of stocks that have increased their value in each of the last three years. Still, that wasn’t enough for it to consistently beat the market. Returns for the CAT stock were 16% in 2021, 19% in 2022, and 26% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
While CAT stock appears fully valued, it is helpful to see how Caterpillar’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
| Returns | Oct 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| CAT Return | -1% | 33% | 404% |
| S&P 500 Return | 1% | 22% | 160% |
| Trefis Reinforced Value Portfolio | 0% | 15% | 766% |
[1] Returns as of 10/28/2024
[2] Cumulative total returns since the end of 2016
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