Caterpillar stock price analysis: is CAT a buy ahead of earnings?

Caterpillar (NYSE: CAT) stock price will be in the spotlight this week as the company publishes its financial results for the first quarter. These results will come at a time when the stock has retreated from the year-to-date high of $380 to $363. Still, it is one of the best-performing company in the Dow Jones as it jumped by over 358% from its lowest point in January 2020.

Caterpillar earnings ahead

Caterpillar, the biggest construction equipment company in the industry, has done well in the past few months as its financial results improve.

The most recent results showed that the company’s revenues jumped from $16.6 billion in Q4’22 to over $17.1 billion in Q4’23. Its profits have also soared as the profit per share moved from $2.79 to $5.28.

For the year, the company’s revenue soared to over $63.89 billion, up from $53.8 billion in 2019. Annual profit has jumped from $6 billion in 2019 to over $10.3 billion, meaning that the company is booming. 

As a result, Caterpillar’s investors have been rewarded substantially. For example, the number of outstanding shares have dropped to about 499 million from almost 600 million in 2018. It has also paid billions of dollars in dividends. The company bought shares worth $5 billion in 2023 and paid $2.6 billion in dividends.

Therefore, the upcoming financial results will be important since they will provide more information about the company’s performance. The average estimate among 15 analysts following the company is that its revenue rose to $16 billion in the first quarter, a 5% increase from the same period in 2022.

In its last financial results, the company estimated that its Q1 revenues will be broadly in line with what it made in Q1’22. It also expects that its full-year results will be similar to what it made in 2023.

Analysts believe that Caterpillar has more room to grow since it is significantly undervalued than the broader market. The company has a TTM PE ratio of 18, which is lower than the sector median of 24. It is also lower than its five-year average of 19.50.

The forward PE multiple of 17.55 is also lower than the five-year average of 18.45 and the industry average of 21. A DCF valuation calculation shows that it is trading at a 31% discount. As a result, most analysts, including those at JPMorgan, Goldman Sachs, and Oppenheimer has more upside to go.

Caterpillar stock price forecast

CAT chart by TradingView

Turning to the daily chart, we see that the CAT share price has been in a strong bull run in the past few months. It has constantly formed higher highs and higher lows in this period. The stock has also remained above all Arnaud Legoux Moving Averages (ALMA). 

The stock has pulled back recently as traders wait for the next earnings. This is in line with my last Caterpillar share price forecast.

Therefore, the outlook for the Caterpillar’s share price is bullish ahead of earnings. If this happens, the next level to watch will be the year-to-date high of $380. A break above that level will see it rise to $400.