In recent months, construction equipment maker Caterpillar Inc. CAT has made several announcements regarding plans for high-profile green energy projects.
Bank of America analyst Ross Gilardi said Tuesday that Caterpillar’s clean future is in the very early stages at this point and investors have no idea how long the company’s green projects will take and how much of a financial impact they will have on the company.
Green Energy Headlines: Caterpillar is reportedly working on developing zero-emission mining machines for mega-miners BHP Group Ltd BHP and Rio Tinto plc ADR Common Stock RIO. In addition, Caterpillar recently announced a hydrogen energy collaboration with Chevron Corporation CVX.
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While these green initiatives make for good headlines, Gilardi said Caterpillar’s current $50 billion business is almost entirely dependent on the internal combustion engine, and Caterpillar has provided very few details about its new initiatives.
“While all of these announcements seem positive, they are mostly very early stage and we have no idea of how much financial muscle CAT is putting behind any of these programs,” Gilardi said.
Difficult Road Ahead: Gilardi noted that Caterpillar is coming off of a seven-to-eight-year stretch during which the company lagged its peers in research and development spending. At first glance, Caterpillar’s goal of decarbonizing large mining trucks seems incredibly difficult. Gilardi said these trucks can carry more than 400 tons of payload each and consume 900,000 liters of diesel fuel per year. The trucks also typically account for between 30% and 50% of a mine’s entire energy use.
For now, Gilardi said he recommends investors go with competitor Deere & Company DE over Caterpillar due to Deere’s superior pricing power.
Bank of America has a Buy rating and $425 price target for Deere and a Neutral rating and a $223 price target for Caterpillar.
Benzinga’s Take: In the current market environment, a tremendous amount of value is being assigned for stories and narratives while underlying business fundamentals are being largely ignored.
In that sense, you can’t blame Caterpillar for going for the easy clean energy headlines, but the company will likely need to produce actual progress on the renewable energy front if it wants to create value for investors in the long term.
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