Analysts And Institutions Put A Bottom In Caterpillar
The analysts have been getting incrementally more bullish on Caterpillar (NYSE: CAT) over the past 12 months and we see this activity driving share prices back to the all-time high set in 2021, at least. Activity since the start of 2022 includes three price target increases that pushed the Marketbeat.com consensus estimate to a new 1-year high. The fresh consensus of $237 is up more than 50% in the last year and we see it trending higher in 2022. The consensus estimate implies about 6.5% of upside for the stock while the high price target of $270 suggests a more robust 20% is at hand. The current consensus sentiment is a weak Buy and we see that, too, getting more bullish over the next year.
As for the institutional activity, institutional activity in shares of Caterpillar has been vigorous over the past year with outflows of $8.18 billion and inflows of $11.22 billion. The salient point is that net activity is bullish in the amount of $3.04 billion or about 2.5% of the current market cap and brings total ownership to over 67% which is a solid vote of confidence for the stock.
The Outlook For Industrial Stocks Like Caterpillar Is Bullish
Not only are the Industrial stocks expected to have done well in calendar Q4 2021 but the outlook for 2022 is very bullish. The Industrial sector as a whole is expected to see revenue grow 12.3% and earnings grow more than 100% in Q4 versus last year and Caterpillar is going to be among the leaders. The caveat is that Caterpillar should see its revenue growth outperform the group while earnings growth will be among the weakest. That said, the analysts are looking for revenue to exceed the 2019 levels and for earnings to come in a range we see easily surpassed.
Looking to F2022, the Industrial Sector is expected to be among the top-performing in regards to both earnings and revenue growth. The sector is looking at revenue growth in the range of 12% with EPS growth in the range of 35% which means margin expansion and we like margin expansion. Caterpillar, within that, is looking at 12.5% revenue growth and 20% earnings growth and we see upside risk in both numbers.
Caterpillar’s Dividend Will Sweeten The Deal
In addition to growth in 2022, Caterpillar is also buying back shares and paying a healthy dividend. The dividend payout is worth 2.0% in yield with shares near $223 and the payout is reliable. The company is only paying out 43% of its consensus earnings estimate and has been raising the dividend for 28 years so not only are we expecting payments to continue but for there to be another increase in the range of 7.0%. Add in the balance sheet which is only lightly levered and with ample coverage and see Caterpillar raising its dividend many years into the future.
The Technical Outlook: Caterpillar Is Moving Up Off A Bottom
Caterpillar shares corrected in 2021 but put a bottom in place by the end of the year and are moving higher now. The price action is supported by a bullish outlook, institutional activity, and the analysts so should continue higher in the near-term. The most recent price action looks like a rally with consolidation/flag and, if confirmed, could take the stock back up to the all-time high before Caterpillar reports earnings at the end of January 2022.
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