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

Caterpillar (CAT) stock rose 2.8% in yesterday’s trade which took its year-to-date gains to 6.7%. The stock is currently down 21.2% from its 52-week highs and is underperforming the markets.

CAT stock is in a bear market territory having fallen over 20% from the peaks. What’s the forecast for the stock after its recent underperformance and is it a buy now?

Caterpillar stock technical analysis

CAT stock is looking mixed on the charts and trades below the 50-day, 100-day, and 200-day SMA (simple moving average). The stock has been struggling to cross above the 200-day SMA. While the 200-day SMA was a strong support for Caterpillar stock, it has acted as a strong resistance since it fell below the trendline in June. While the stock has briefly crossed above the 200-day SMA, it has failed to sustain above the trendline. For a technical uptrend to resume, CAT stock has to break above the 200-day decisively.

Meanwhile, the 12,26 MACD (moving average convergence divergence) gives a buy signal for Caterpillar stock. Its 14-day RSI (relative strength index) is 45.7 which is a neutral indicator.

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Caterpillar third-quarter earnings

Caterpillar would release its third-quarter earnings later this month. Analysts expect the company’s revenues to rise 26.7% to $12.5 billion in the quarter. Here the steep rise in revenues should be read with a pinch of salt as it is coming from a lower base and the company’s revenues had tumbled 22.6% in the third quarter of 2020 due to the COVID-19 pandemic. Analysts expect CAT’s adjusted EPS to rise 66.7% to $2.23 in the third quarter.

The construction business is the biggest revenue contributor for Caterpillar and accounted for over 43% of its second-quarter revenues. The energy and transportation segment is the second biggest contributor and accounted for around 38% of its second-quarter revenues. The Resource Industries segment accounted for a fifth of the company’s revenues.

Looking at the geographical breakdown, North America is the biggest market for Caterpillar and contributed almost 45% to its second-quarter revenues. EAME (Europe, Africa, and the Middle East) is the second biggest contributor to CAT’s revenues followed by the Asia Pacific.

CAT stock forecast

Wall Street analysts have a split rating on Caterpillar stock. It has received 12 buys, 13 holds, and two sell ratings from the 27 analysts polled by CNN Business. The stock’s median target price is $233.50 which is a premium of 20.2% over current prices. CAT’s street high target price of $301 is a premium of almost 55% while the street low target price of $125 represents a discount of 35.7% over current prices.

Caterpillar stock long term forecast

The long-term outlook for Caterpillar stock looks bullish looking at the momentum in the global economy. Notably, CAT is among the stocks that would benefit from President Biden’s infrastructure investments. Also, after years of underinvestment, the mining industry is also witnessing a rebound in activity which bodes well for Caterpillar.

Analysts expect the company’s revenues to rise 20.6% this year and 11.3% next year. Its adjusted EBITDA is expected to rise 45.2% and 18.7% respectively in 2021 and 2022. Notably, the estimates for 2022 don’t seem to factor in any impact from Biden’s infrastructure plans.

Cowen issued a bullish note on CAT stock

Yesterday, Cowen issued a bullish note on Caterpillar stock. “We project the first megacycle for CAT’s financial performance in 14 years and only the second in modern history. We see a $35Bn revenue opportunity from autonomy in the next decade,” it said in its note. The brokerage added, “We expect at least 75% of CAT’s markets will seek improved or new power technologies. Our analyses of overlooked rail metrics portend momentum for construction.”

Yesterday only, Evercore ISI maintained the outperform rating on CAT stock while lowering the target price from $291 to $257. Earlier this week, Citigroup had boosted its target price on CAT stock from $215 to $235. However, Morgan Stanley lowered the target price from $172 to $165 while maintaining its underweight rating.

Should you buy Caterpillar stock?

Caterpillar stock currently trades at an NTM (next-12 months) PE multiple of 18.2x. The multiples are in line with its long-term averages. Notably, while the broader market multiples have seen an expansion, we have not seen a similar rerating in CAT stock. Looking at the structural uptrend in the end industries that the company is serving, including the positive impact from the proposed infrastructure investments in the US, CAT looks like a good stock to buy.

The valuations seem reasonable, and the fall from the peak has only made CAT stock more attractive. The company also pays a dividend and its current yield is 2.3% which is higher than the S&P 500’s dividend yield. Overall, CAT looks like a good stock to play multiple themes including a revival in global capex, Biden’s infrastructure plans, and the continued recovery in the global economy.

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