CAT - Here's Why Caterpillar Stock Is Falling Today
2024-02-13 16:34:58 ET
There are no prizes for guessing the main reason for the 3% decline in Caterpillar's (NYSE: CAT) share price to late afternoon today. Higher-than-expected inflation data dampened hopes for an early interest rate cut, and that's not good news for highly cyclical stocks like Caterpillar.
The company is often seen as highly sensitive to the economy due to its exposure to construction (an activity that decreases as the cost of borrowing rises), mining (industrial metals rely on the economy for demand growth), and energy and transportation.
These facts are recognized in management's guidance, which calls for free cash flow (FCF) generation of $5 billion to $10 billion through the cycle. In other words, when the economy is firing on all cylinders, Caterpillar expects to generate $10 billion in FCF, while when it hits a trough, the company should generate no less than $5 billion. As such, the longer interest rates stay relatively high, the more pressure there will be on Caterpillar's earnings.
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Here's Why Caterpillar Stock Is Falling Today