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Reasons to Add Caterpillar (CAT) Stock to Your Portfolio

Caterpillar Inc. (CAT) has been delivering growth in its top and bottom lines for nine straight quarters despite inflationary pressures and supply-chain snarls that have been plaguing the industry at large. The outperformance was aided by improving demand in CAT’s end markets and cost-control efforts. A strong liquidity position and the company’s ongoing investments in its expanded offerings, services and digital initiatives are expected to contribute to growth.

Let’s delve deeper and analyze the factors that make this Zacks Rank #1 (Strong Buy) stock a strong investment option at the moment.

Solid Q1 Results & Robust Backlog Levels: Caterpillar’s adjusted earnings per share were $4.91 in first-quarter 2023, which marked a 70.5% year-over-year improvement. Strong demand across most of its end markets and a favorable price realization led to improved earnings despite unfavorable manufacturing costs in the quarter. The backlog at the end of the quarter was an impressive $30.4 billion. This bodes well for CAT’s top-line performance in the days ahead.

Positive Earnings Surprise History: Caterpillar’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 14.3%.

Upbeat Growth Projections: An uptrend in the Zacks Consensus Estimate for the company echoes a positive sentiment. The consensus estimate for 2023 earnings has moved 12% upward over the past 30 days and is pegged at $17.61 per share. It suggests growth of 27.2% from the year-ago reported figure.

The consensus mark for fiscal 2024 earnings stands at $17.96 per share, indicating a year-over-year improvement of 2%. The Zacks Consensus Estimate has moved up 8% over the past 30 days.

CAT has an estimated long-term earnings growth rate of 12%.

Solid Demand to Aid Top-Line Growth

In North America, demand in the residential and non-residential construction sectors is likely to bolster demand for Caterpillar’s construction equipment. The perked-up investment in roads, bridges, airports and waterways as a result of the U.S. Infrastructure Investment and Jobs Act represents a huge opportunity for CAT.


In the Asia Pacific (barring China) region, higher commodity prices, housing strength and increased government spending on infrastructure will support construction equipment sales. Increased construction activity will drive machine demand in EAME and Latin America.

In Resource Industries, mining orders are on an uptrend, auguring well for the Resource Industries segment. Miners are increasingly relying on autonomous systems to enhance productivity and reduce costs and emissions. Therefore, Caterpillar is enhancing its autonomous capabilities and bringing innovative products to the market. In the Energy & Transportation segment, strong order rates in most applications are expected to support revenues.

Strong Balance Sheet

CAT’s cash and liquidity position remains strong, with the company generating an operating cash flow of $1.4 billion in the first quarter of 2023. It ended the quarter with cash and short-term investments of $6.8 billion. Machinery, Energy & Transportation (ME&T)  debt stood at $9.6 billion. Compared to the base of 4.5 in 2017, its times interest earned ratio has improved substantially over the years and is currently at 9.2.

CAT continues to maintain its status as a dividend aristocrat, having continued its streak of paying higher dividends to its shareholders for 29 straight years. CAT’s dividend yield and payout ratio are higher than its peers. Over the past four years, the company has returned an average of 99% of its ME&T free cash flow to its shareholders, in sync with its target of returning all its ME&T free cash flow to its shareholders over time.

Growth Strategies in Place

Caterpillar continues to focus on customers steadily investing in digital capabilities, connecting assets and job sites, and developing next-generation productive and efficient products. CAT is consistently investing in expanding its offerings and services, and digital initiatives like e-commerce to drive long-term growth.

Price Performance

Shares of Caterpillar have gained 4.2% in the past year, compared with the industry’s 4.6% growth.

Zacks Investment Research
Zacks Investment Research

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Other Stocks to Consider

Some other top-ranked stocks from the Industrial Products sector are Worthington Industries, Inc. WOR, The Manitowoc Company, Inc. MTW and AptarGroup, Inc. ATR. Currently, WOR and MTW sport a Zacks Rank of 1, while ATR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Worthington Industries has an average trailing four-quarter earnings surprise of 27.5%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $4.93 per share. The consensus estimate for 2023 earnings has moved north by 17.7% in the past 60 days. Shares of WOR have gained 33.5% in the last year.

Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. Shares of MTW have rallied 29.1% in the last year.

The Zacks Consensus Estimate for AptarGroup’s 2023 earnings per share is pegged at $4.15. The consensus estimate for 2023 earnings rose 8% in the last 60 days. ATR has a trailing four-quarter average earnings surprise of 6.4%. Shares of ATR have gained 13.4% in the last year.

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