KMTUF - Caterpillar: Market Leading Compounder With Limited Valuation Upside

2024-04-15 06:36:48 ET

Summary

• Caterpillar’s revenue has grown mildly (+2%) but is contextualized by a portfolio pivot to higher margin offerings and its considerable scale.
• The company is a market leader globally, both commercially and financially. We do not believe there is any challenge to the company’s competitive position.
• We expect margin improvement to slow but growth should remain healthy, owing to industry tailwinds as infrastructure investment must increase.
• Whilst this is bullish for Caterpillar, the company’s valuation prices much of this in. Investors have rewarded its impressive decade, leaving limited scope for upside currently.

Introduction and thesis

Caterpillar Inc. ( CAT ) is a multinational corporation that designs, manufactures, markets, and sells machinery, engines, and financial products and services. Founded in 1925 and headquartered in Deerfield, Illinois, Caterpillar operates through various segments, including Construction Industries, Resource Industries, Energy & Transportation, and Financial Products.

Caterpillar is a fantastic business. The company is the undisputed leader across a number of industry segments, owing to brand development and innovation. Given this size, the company can deliver market-leading margins and distributions to shareholders, while impressively still broadly matching its peers in growth....

For further details see: