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Group President Sells CAT Stock: What Does it Mean for Investors?
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Per Caterpillar’s (CAT - Free Report) SEC filing on Monday, Anthony D. Fassino, the group president of its Construction Industries segment, sold 6,279 shares at an average price of $408.59 per share (total of around $2.57 million) on Nov. 29.
This was part of other transactions carried out by him, which entailed disposing of 2,854 CAT shares for $408.22 per share as the payment of exercise price or tax liability. Fassino also exercised options to acquire 9,133 Caterpillar shares.
Does Fassino’s sale of CAT shares signal a concern about the company's prospects? Should investors follow suit or stay put? Let us dig deeper into Caterpillar’s prospects to find the answer.
Caterpillar shares have gained 35% year to date compared with the industry’s 32.5% growth. In comparison, the Zacks Industrial Products sector and the S&P 500 have returned 22.8% and 27%, respectively, in the same period.
CAT Stock’s YTD Price Performance
Image Source: Zacks Investment Research
Caterpillar Shares Trade Above 50 & 200-Day SMA
Image Source: Zacks Investment Research
Caterpillar stock is trading above its 50-day and 200-day moving averages, a classic indicator of bullish momentum. The 50-day SMA consistently exceeding the 200-day SMA signals continued market confidence in the company’s prospects and financial health.
CAT Maintains Margin Outlook Despite Lower Revenues
Caterpillar has been witnessing a decline in overall volumes in five consecutive quarters, which is attributed to muted consumer spending amid the current inflationary scenario. This was attributed to weak demand in the Construction Industries and Resource Industries segments, which was somewhat offset by improved performance in the Energy & Transportation segment.
Caterpillar expects 2024 revenues to be slightly lower than its prior expectations. It had initially forecasted revenues to be “slightly lower” than the record $67 billion reported in 2023. Despite the tepid revenue expectations, the adjusted operating margin is expected to be higher than CAT’s targeted range, aided by its cost-saving and restructuring actions.
The company maintains its revenue guidance at $42-$72 billion. According to the revenue levels, margins are expected between 10% and 22%, as shown in the chart below.
Image Source: Caterpillar
Few Near-Term Challenges for Caterpillar
Weak Demand in China: Due to the slowdown in China's real estate industry, its construction industry has taken a hit. Caterpillar is expected to continue to see weak demand for the 10-ton and above excavator market in China, which had previously been one of its largest markets.
Prolonged Contraction in the Manufacturing Sector: The Institute for Supply Management’s manufacturing index registered 48.4% in October, marking its eighth month in the contraction territory (with a reading below 50%).
The New Orders Index was 50.4% in November, crossing the 50% mark for the first time since March 2024. It remains to be seen whether this will be sustained as the Index has struggled to deliver consistent growth since the end of its 24-month expansion streak in May 2022.
Upbeat Earnings Growth Projections for Caterpillar
Earnings estimates for Caterpillar have moved down 1% for 2024 and 4.25% for 2025 over the past 60 days.
Image Source: Zacks Investment Research
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Notwithstanding the downward activity, the Zacks Consensus Estimate for 2024 indicates year-over-year growth of 2.2%, and the same for 2025 suggests 1% growth.
Image Source: Zacks Investment Research
CAT’s Long-Term Growth Potential Remains Strong
CAT has a projected long-term EPS growth rate of 9.3%, higher than the industry’s 8%.
The increase in projects enabled by the U.S. Infrastructure Investment and Jobs Act creates massive opportunities for Caterpillar’s wide range of construction equipment. The shift to clean energy requires a vast amount of commodities, which will boost the demand for Caterpillar’s mining equipment. Miners are increasingly relying on autonomy to increase productivity and efficiency, and improve safety. CAT’s focus on enhancing its autonomous fleet will provide a competitive edge.
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 CAT equipment. As technology companies establish data centers globally to support their generative AI applications, Caterpillar is witnessing robust order levels for reciprocating engines. It is planning to double its output with a multi-year capital investment.
CAT has also witnessed growth in aftermarket parts and service-related revenues, which generate high margins. It is on track to double its service revenues from $14 billion in 2016 to $28 billion in 2026.
The company has a five-year dividend growth rate of 6.9%. CAT's 1.49% dividend yield is higher than the sector’s yield of 1.20% and the S&P 500’s 119%. CAT has a payout ratio of 24.15%, higher than the industry’s 22.5%. The company has paid higher dividends to shareholders for 30 straight years and is a member of the S&P 500 Dividend Aristocrat Index.
CAT’s Return on equity — a profitability measure of how prudently the company is utilizing its shareholders’ funds — is 59.1%, higher than the sector’s average of 22.5% and the S&P 500’s 29.4%.
Image Source: Zacks Investment Research
CAT Stock Trades at a Premium to Industry
CAT is currently trading at a forward 12-month P/E of 18.31X compared with the industry’s 17.48X. Its peers Komatsu (KMTUY - Free Report) , Terex (TEX - Free Report) and Manitowoc (MTW - Free Report) are trading at 10.61X, 9.69X and 12.20X, respectively.
Image Source: Zacks Investment Research
What Should Investors Do With CAT Stock?
While insider selling sometimes raises concerns, the recent sale by Fassino does not indicate a lack of confidence in CAT’s prospects. While weak volumes due to the overall weakness in end markets will likely weigh on Caterpillar’s top-line results this year, its focus on lowering costs will sustain margins.
CAT’s long-term demand prospects remain supported by increased infrastructure spending, energy-transition trends and growth in data centers. 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.
Image: Bigstock
Group President Sells CAT Stock: What Does it Mean for Investors?
Per Caterpillar’s (CAT - Free Report) SEC filing on Monday, Anthony D. Fassino, the group president of its Construction Industries segment, sold 6,279 shares at an average price of $408.59 per share (total of around $2.57 million) on Nov. 29.
This was part of other transactions carried out by him, which entailed disposing of 2,854 CAT shares for $408.22 per share as the payment of exercise price or tax liability. Fassino also exercised options to acquire 9,133 Caterpillar shares.
Does Fassino’s sale of CAT shares signal a concern about the company's prospects? Should investors follow suit or stay put? Let us dig deeper into Caterpillar’s prospects to find the answer.
CAT Stock Price Performance Beats Industry, Sector & S&P 500
Caterpillar shares have gained 35% year to date compared with the industry’s 32.5% growth. In comparison, the Zacks Industrial Products sector and the S&P 500 have returned 22.8% and 27%, respectively, in the same period.
CAT Stock’s YTD Price Performance
Image Source: Zacks Investment Research
Caterpillar Shares Trade Above 50 & 200-Day SMA
Image Source: Zacks Investment Research
Caterpillar stock is trading above its 50-day and 200-day moving averages, a classic indicator of bullish momentum. The 50-day SMA consistently exceeding the 200-day SMA signals continued market confidence in the company’s prospects and financial health.
CAT Maintains Margin Outlook Despite Lower Revenues
Caterpillar has been witnessing a decline in overall volumes in five consecutive quarters, which is attributed to muted consumer spending amid the current inflationary scenario. This was attributed to weak demand in the Construction Industries and Resource Industries segments, which was somewhat offset by improved performance in the Energy & Transportation segment.
Caterpillar expects 2024 revenues to be slightly lower than its prior expectations. It had initially forecasted revenues to be “slightly lower” than the record $67 billion reported in 2023. Despite the tepid revenue expectations, the adjusted operating margin is expected to be higher than CAT’s targeted range, aided by its cost-saving and restructuring actions.
The company maintains its revenue guidance at $42-$72 billion. According to the revenue levels, margins are expected between 10% and 22%, as shown in the chart below.
Image Source: Caterpillar
Few Near-Term Challenges for Caterpillar
Weak Demand in China: Due to the slowdown in China's real estate industry, its construction industry has taken a hit. Caterpillar is expected to continue to see weak demand for the 10-ton and above excavator market in China, which had previously been one of its largest markets.
Prolonged Contraction in the Manufacturing Sector: The Institute for Supply Management’s manufacturing index registered 48.4% in October, marking its eighth month in the contraction territory (with a reading below 50%).
The New Orders Index was 50.4% in November, crossing the 50% mark for the first time since March 2024. It remains to be seen whether this will be sustained as the Index has struggled to deliver consistent growth since the end of its 24-month expansion streak in May 2022.
Upbeat Earnings Growth Projections for Caterpillar
Earnings estimates for Caterpillar have moved down 1% for 2024 and 4.25% for 2025 over the past 60 days.
Image Source: Zacks Investment Research
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Notwithstanding the downward activity, the Zacks Consensus Estimate for 2024 indicates year-over-year growth of 2.2%, and the same for 2025 suggests 1% growth.
Image Source: Zacks Investment Research
CAT’s Long-Term Growth Potential Remains Strong
CAT has a projected long-term EPS growth rate of 9.3%, higher than the industry’s 8%.
The increase in projects enabled by the U.S. Infrastructure Investment and Jobs Act creates massive opportunities for Caterpillar’s wide range of construction equipment. The shift to clean energy requires a vast amount of commodities, which will boost the demand for Caterpillar’s mining equipment. Miners are increasingly relying on autonomy to increase productivity and efficiency, and improve safety. CAT’s focus on enhancing its autonomous fleet will provide a competitive edge.
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 CAT equipment. As technology companies establish data centers globally to support their generative AI applications, Caterpillar is witnessing robust order levels for reciprocating engines. It is planning to double its output with a multi-year capital investment.
CAT has also witnessed growth in aftermarket parts and service-related revenues, which generate high margins. It is on track to double its service revenues from $14 billion in 2016 to $28 billion in 2026.
CAT Offers Sector-Leading Dividend Yield & Returns
The company has a five-year dividend growth rate of 6.9%. CAT's 1.49% dividend yield is higher than the sector’s yield of 1.20% and the S&P 500’s 119%. CAT has a payout ratio of 24.15%, higher than the industry’s 22.5%. The company has paid higher dividends to shareholders for 30 straight years and is a member of the S&P 500 Dividend Aristocrat Index.
CAT’s Return on equity — a profitability measure of how prudently the company is utilizing its shareholders’ funds — is 59.1%, higher than the sector’s average of 22.5% and the S&P 500’s 29.4%.
Image Source: Zacks Investment Research
CAT Stock Trades at a Premium to Industry
CAT is currently trading at a forward 12-month P/E of 18.31X compared with the industry’s 17.48X. Its peers Komatsu (KMTUY - Free Report) , Terex (TEX - Free Report) and Manitowoc (MTW - Free Report) are trading at 10.61X, 9.69X and 12.20X, respectively.
Image Source: Zacks Investment Research
What Should Investors Do With CAT Stock?
While insider selling sometimes raises concerns, the recent sale by Fassino does not indicate a lack of confidence in CAT’s prospects. While weak volumes due to the overall weakness in end markets will likely weigh on Caterpillar’s top-line results this year, its focus on lowering costs will sustain margins.
CAT’s long-term demand prospects remain supported by increased infrastructure spending, energy-transition trends and growth in data centers. 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.