Caterpillar Stock Price Forecast August 2021 – Time to Buy CAT?

The US Senate has passed the $1 trillion infrastructure bill which led to a spike in several stocks yesterday. Caterpillar is among the companies that would benefit from the infrastructure bill. What’s the forecast for CAT stock and should you buy it now?

As the supplier of construction and mining equipment, Caterpillar would also benefit from higher infrastructure investments. The company has globally diversified operations and is also a play on the global economic recovery.

Caterpillar stock technical analysis

Caterpillar stock is looking decent on the charts. The stock rebounded after finding support at the 200-day SMA (simple moving average). However, the stock is facing resistance at the 50-day SMA which is currently at $216.79. If CAT can cross above the 50-day SMA it would signal a technical uptrend. The next resistance for the stock would be the 100-day SMA which is currently at $224.96. Caterpillar stock has a 14-day RSI of 53.9 which is a neutral indicator and signals neither overbought nor oversold positions. The 12,26 MACD (moving average convergence divergence) meanwhile gives a buy signal.

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CAT stock recent developments

Last month, Caterpillar released its second-quarter earnings that showed that its revenues in the quarter rose 29% to $12.9 billion. The company’s EPS also jumped from $0.84 to $2.56 over the period. The company generated strong operating cash flows of $4 billion in the first half of 2021 and returned $0.8 billion to shareholders through dividends and buybacks during the period. “We’re encouraged by higher sales and revenues across all regions and in our three primary segments, which reflect continued improvement in our end markets,” said Caterpillar CEO Jim Umpleby.

Meanwhile, the infrastructure bill is another crucial development for CAT stock and the company would be among the beneficiaries as the US embarks on an ambitious plan to revamp the country’s infrastructure.

Caterpillar stock forecast

Wall Street analysts are not very bullish on CAT stock. Of the 26 analysts polled by CNN Business, 11 rate the stock as a buy while 12 rate it as a hold. Three analysts have a sell or equivalent rating on the stock.

Its median target price of $235 implies an upside of 9.8% over current prices. Its lowest target price is $1256 which is a discount of over 41.6% while the highest target price of $303 is a premium of 41.5% over current prices.

 BMO downgraded CAT stock

In June, BMO had downgraded Caterpillar stock from outperform to market perform. “We believe any near-term recovery for its end markets will be somewhat challenged by customers’ budgetary constraints and government finances being stretched,” it said in its note. The analysts added, “These factors will likely overwhelm the myriad internal improvements occurring at the company, at least for the next few years. As a result, we model net income and EBITDA in 2022 that are below levels seen in 2012, which would mark a decade of stagnant growth.”

However, Credit Suisse has CAT stock as part of its conviction list. Earlier this month, Tigress Financial also reiterated its buy rating and $270 target price on Caterpillar stock. Goldman Sachs also reiterated its bullish stance on CAT stock in August.

CAT stock long term forecast

We are in an accommodative monetary and fiscal policy environment and the scenario is expected to continue for some more time. Central banks and governments globally look in no mood to pull the plug on the easing cycle. There is a commodity supercycle and mining companies are increasing capex to meet the higher demand which bodes well for companies like Caterpillar. The infrastructure bill would be another cherry on the cake for Caterpillar stock as it would help it increase the revenues from its domestic market.

Analysts expect Caterpillar’s revenues to rise 21.1% in 2021 and 11.5% in 2022. The company’s EBITDA is expected to rise 47% this year and 20% in 2022. As the US scales up its infrastructure investments, CAT could end up surprising on the upside in terms of financial performance.

Valuation

CAT stock trades at an NTM (next-12 months) PE of just under 20x. The multiple has averaged 25x over the last year and 20x over the last five years. While CAT’s multiples look in sync with their long-term multiples, they are below the last year’s average.

Caterpillar stock is up 17.5% so far in 2021 and is slightly underperforming the S&P 500. However, the stock could see better days ahead amid the continued mining boom as well as the thrust on infrastructure. There is a boom in the global economy and CAT looks among the good cyclical plays to play the rebound in the global economy.

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