caterpillar (NYSE: CAT) stock rose 7% in a week, while its competitor, Deere shareshas not changed. The rise in CAT stock can be attributed to the recently reported second quarter results, with revenues coming in slightly below consensus and our estimates, but earnings above. The company reported revenue of $16.7 billion and earnings of $5.99 per share and adjusted, compared to our estimates of $16.8 billion and $5.56, respectively. Total volume remained lower, while price increases continued to boost total revenue. Although Caterpillar reported a mixed second quarter, its stock appears fairly valued at its current level of around $335.

CAT stock has seen strong gains of 95% from $170 in early January 2021 to around $335 now, while the S&P 500 has seen a gain of about 40% over that roughly 3-year period. CAT is one of the few stocks that has increased in value in each of the past 3 years, but that still hasn’t been enough to consistently beat the market. The stock’s returns were 16% in 2021, 19% in 2022, and 26% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that CAT lagged behind the S&P in 2021.

Actually, consistently beats the S&P 500 – in good times and bad – has been difficult for individual stocks in recent years; for other heavyweights in the industrial sector, including GE, RTX and UNP, and even for megacap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; it was less of a rollercoaster ride, as evidenced by the HQ portfolio’s performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CAT face a similar situation to that in 2021 and perform worse than the S&P in the next 12 months – or will there be a sharp jump? From a valuation perspective, the CAT share seems to be fairly valued. We estimate Caterpillar’s Rating to $357 per share, slightly above the current market price. Our forecast is based on a P/E ratio of 16 for CAT and expected earnings of $22.14 per share, adjusted for full-year 2024. The value of 16 corresponds to the stock’s average P/E ratio over the past five years.

Caterpillar’s sales of $16.7 billion in the second quarter was a 4% year-over-year decline. Looking at the segments, construction revenues fell 7%, natural resources revenues fell 10%, while energy and transportation revenues rose 2%. Caterpillar increased its adjusted operating margin by 110 basis points to 22.4% in the second quarter of 2024. The company’s earnings were $5.99, compared to $5.55 in the year-ago quarter.

Looking ahead, Caterpillar expects dealer inventory to decline slightly in 2024, compared to a $700 million increase in 2023. We expect Caterpillar’s price growth to likely moderate in the coming quarters, which is a difficult comparison given the significant contribution of price increases in recent quarters to revenue growth. Overall, we believe CAT stock is fully valued at $335 and investors looking to get in are likely better off waiting for a decline to lock in robust long-term gains.

Although the price of CAT stock seems reasonable, it is helpful to see how Caterpillar colleagues Comparisons of important key figures. You can find further valuable comparisons for companies in various industries at Comparisons with other providers.

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