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Insider Selling at Caterpillar (CAT): Is it Time for You to Sell Too?

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Per Caterpillar’s (CAT - Free Report) SEC filing on Tuesday, the group’s president, Anthony D. Fassino, sold 3,185 shares at $351.36 per share or a total of $1.1 million on Aug. 30. This was part of other transactions carried out by him, which entailed disposing of 1,815 shares for $351.43 per share as the payment of exercise price or tax liability. Fassino also exercised options to acquire 5,000 shares for $127.6 per share.

The sale of shares by Fassino, who is responsible for CAT’s Construction Industries segment, may have piqued investor interest. These transactions can be part of executives’ financial planning or diversification strategies.

These moves are closely watched by the market as they provide an insight into executives’ perception of the company’s prospects and share price movement.

Should investors consider selling CAT shares? Let us dig deeper to find the right answer.

CAT’s YTD Share Price Performance Versus Peers

 

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Caterpillar shares have gained 15.1% year to date compared with the industry’s 12.4% growth.

It has also outpaced peers like Komatsu (KMTUY - Free Report) , Terex (TEX - Free Report) and Manitowoc (MTW - Free Report) .

CAT Trades Above 50 & 200-Day SMA

 

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In the chart, it can be observed that the Caterpillar stock is riding above both the 50-day simple moving average (SMA) and 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in CAT’s financial health and prospects.

Factors Aiding CAT’s Performance

Earnings Growth Streak Continues Despite Dip in Revenues: The Caterpillar stock notched a 6.7% gain since its second-quarter 2024 results on Aug 6. Investors were impressed by the company delivering margin improvement and its highest-ever quarterly earnings despite weak volumes hurting its top-line performance. With this performance, CAT maintained its stint of higher year-over-year earnings for fourteen straight quarters.

Backlog Levels Robust: Caterpillar ended the second quarter with a backlog of $28.6 billion, which improved by $700 million sequentially. Backlog, as a percentage of revenues, is higher than historic levels and will likely support revenues in the forthcoming quarters.

Cat's 2024 Margin View Upbeat Amid Weak Volumes: The company has been witnessing a decline in overall volumes for the past three consecutive quarters. This mainly reflects muted consumer spending in the current inflationary scenario. Volumes in both Construction and Resource Industries are anticipated to decline through the rest of 2024, while the Energy & Transportation segment will register improvement.

The company maintains its broad spectrum of revenues at $42-$72 billion. According to the revenue levels, margins are expected between 10% and 22%

Caterpillar expects revenues in 2024 to be slightly lower than the record 2023 revenues of $67 billion. The company earlier expected revenues for the year to be “broadly similar” to the 2023 reported level. Despite this, CAT expects the adjusted operating margin to be above the target range. Caterpillar previously expected the adjusted operating profit margin to be in the top half of the range.

Projected Estimates Indicate Growth for CAT

Caterpillar has performed better than its peers in the backdrop of the uncertain economy. Its pricing and cost-saving measures will help it counter the impacts of lower volumes on its earnings performances. 

Earnings estimates for Caterpillar have moved up for 2024 but moved down for 2025. The estimate for 2024 indicates year-over-year growth of 3.1% and that for 2025 suggests a 4.5% rise. CAT has a long-term EPS growth rate of 9%.



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CAT’s Long-Term Prospects Intact

The expected increase in projects enabled by the U.S. Infrastructure Investment and Jobs Act will create massive opportunities for Caterpillar’s wide range of construction equipment. The worldwide efforts in the transition to clean energy will boost the demand for its mining equipment. Miners are resorting to autonomy to increase productivity and efficiency, reduce costs, and improve safety. CAT has been enhancing its autonomous fleet to capitalize on this. 

In Energy & Transportation, strong order rates in most applications are expected to support revenues. In the Oil & Gas sector, the increased focus on sustainability will drive the demand for Caterpillar’s equipment. As technology companies establish data centers globally to support their generative AI applications, the company is witnessing robust order levels for reciprocating engines for data centers. It is planning to double its output with a multi-year capital investment.

CAT has been seeing growth in aftermarket parts and service-related revenues, which generate high margins. It is on track to double its services revenues from $14 billion in 2016 to $28 billion in 2026.

CAT Offers Sector-Leading Dividend Yield & Returns

Caterpillar's 1.62% dividend yield is higher than the sector’s yield of 1.50% and the S&P 500’s 1.31%. Its payout ratio of 23.3%, higher than the industry’s 22.5%. The company has a solid record of paying out higher dividends to shareholders for 30 straight years. 

Return on equity — a profitability measure of how prudently the company is utilizing its shareholders’ funds — is 59.9%, higher than the sector’s average of 22.1% and the S&P 500’s 29.4%.

Caterpillar’s Return on Assets is at 13.1%, ahead of the sector’s 7.3% and the S&P 500’s 7.5%, indicating that the company has been utilizing its assets efficiently to generate returns.

CAT Trades at a Premium to Industry

 

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CAT is currently trading at a forward 12-month P/E of 15.08X compared with the industry’s 14.22X. Its peers Komatsu, Terex and Manitowoc are trading below the industry.

Should Investors Add CAT to Their Portfolios Now?

While insider selling at times raises concerns, the recent sale by Fassino does not indicate a lack of confidence in CAT’s prospects. Weak volumes due to the overall weakness in end markets will likely weigh on Caterpillar’s top-line results this year. However, its incessant focus on lowering costs will sustain margins. 

CAT’s long-term demand prospects remain supported by increased infrastructure spending and energy-transition trends. Caterpillar’s focus on growing service revenues should help it maintain an upbeat performance. The company is also returning value to shareholders through consistent dividend payments. Existing stakeholders should maintain their position in this Zacks Rank #3 (Hold) stock, while new investors should wait for a better entry point, given its higher valuation.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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