Caterpillar's Reverse DCF Suggests Fair Valuation Around $600

about 1 month ago

"Well, to round this discussion out, let's do a reverse DCF for Caterpillar. This is just one scenario that gets us to the current stock price of around $600. Trailing 12 month GAAP earnings per share of $19 and 48 cents. Earnings per share growth of 14% for the next five years with a terminal growth rate of 5% thereafter and a discount rate of 10% gets us to that fair value of 600. It's worth mentioning here, this is obviously just one scenario based on the stock price. At the time we actually recorded this, it was around 600 bucks. So obviously these assumptions, if you're running a reverse DCF will change all the time based on the stock price."

The speaker presents a reverse DCF analysis for Caterpillar, highlighting that based on current GAAP earnings, a 14% EPS growth forecast over the next five years, and other assumptions, the current stock price near $600 appears fairly valued. Though revenue growth is muted, strong profit expansion and margin improvement, particularly from the company's onsite power segment, underpin the analysis. Investors are advised to monitor valuation metrics closely when considering exposure.

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