Market Overview

Buckingham: Caterpillar Set To Deliver 30% EPS Growth This Year

Buckingham: Caterpillar Set To Deliver 30% EPS Growth This Year

The underperformance of Caterpillar Inc. (NYSE: CAT) shares since its fourth-quarter earnings release in late January provides a buying opportunity for a company still in the early stages of a multiyear earnings expansion story, according to Buckingham Research Group. 

The Analyst

Analyst Neil Frohnapple initiated coverage of Caterpillar with a Buy and $170 price target. 

The Thesis

Caterpillar is poised to deliver earnings per share growth of more than 30 percent this year, Frohnapple said in a Wednesday note. Revenue momentum in a number of the equipment manufacturer's end markets is likely to push earnings to the high end of its guidance range, more than offsetting any potential incremental steel cost inflation this year, the analyst said.

Frohnapple attributed his bullish stance on Caterpillar to the following: 

  • The analyst said he sees a significant runway for revenue and earnings growth ahead, with 2018 total sales estimated at $52 billion — 5-10 percent below midcycle levels. Buckingham's $10.50 earnings estimate for 2019 is a reasonable midcycle estimate, while the firm projects peak earnings of $16 per share four to five years from now, Frohnapple said. Upside to Buckingham's estimates could come courtesy of potential share repurchases and accretive acquisitions, the analyst said. 
  • Caterpillar has emerged from the longest downturn in its history as a stronger company with a significantly lower cost structure, Frohnapple said. Since 2014, the company has reduced costs by $2 billion, the analyst said. 
  • Buckingham views Caterpillar's cash generation and balance sheet as attractive. Caterpillar will generate over $11 billion of manufacturing free cash flow in 2018 and 2019, Frohnapple said.  "The company has raised its dividend for 24 consecutive years, and we expect the company to continue to increase its dividend as net income rises over the next several years."

Price Action

Caterpillar shares have shed about 7 percent year-to-date. The stock, which gained over 51 percent in the past year, was trading down 0.76 percent at the time of publication Wednesday.

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Latest Ratings for CAT

Oct 2019DowngradesOverweightEqual-Weight
Oct 2019MaintainsOutperform
Oct 2019MaintainsOverweight

View More Analyst Ratings for CAT
View the Latest Analyst Ratings

Posted-In: Buckingham Research Neil FrohnappleAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga


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