Caterpillar's Reverse DCF Suggests Fair Valuation Around $600
"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.
Caterpillar Boosted by AI Data Center Demand
"All right, got to hit Caterpillar. Cat um up more than 10%. Higher third quarter revenue. The interesting thing is that it really got a boost from its energy and transportation business more so than the business that makes the heavy duty equipment for construction and mining. And that's because of rising demand for equipment that's needed to fuel AI data centers. So that division, their energy and transportation, they provide battery storage, backup generators for industries. It's been Caterpillar's fastest growing segment. So keep an eye on it. As far as tariffs, they did say they expect a record 650 million to $800 million in uh tariff costs in the fourth quarter."
Caterpillar is benefiting significantly from its energy and transportation segment, which is experiencing rapid growth driven by AI data center demand. While the stock is up over 10% and the segment is the fastest growing, upcoming tariff costs pose a potential headwind.
Caterpillar Benefitting from Data Center Demand and Construction Demand
"Who's having a good time? Uh, it's Caterpillar. Ticker CAT up as much as 4%. So posted high third quarter revenue. But the interesting thing is that it got a boost from energy and transportation business because you have rising demand for equipment needed to fuel AI data centers and that's what's driving them because they provide the battery storage, the backup generators for industries and that's going to be big for these AI data centers. ... Now they're building data centers. They make boring yellow bulldozers."
The commentary on Caterpillar emphasizes its strong Q3 performance and a surprising catalyst: its role in serving the AI data center market through energy and transportation solutions. Despite being known for traditional heavy equipment, Caterpillar is positioned to benefit from new growth avenues.
Caterpillar beats estimates with strong earnings
"Outperforming Nvidia this morning is another name that we like to look at for the global growth picture, and that is Caterpillar. Cat is your ticker. Trading at $550 a share, higher by almost 5%. They had that massive exposure to Asia. They were worried about a construction slowdown as well, but it looks like their earnings are coming in very strong. They're beating estimates and also they're talking about higher sales from their energy unit."
Nathan highlights Caterpillar's robust earnings beat and improved sales outlook, suggesting that the company is overcoming previous worries about Asian construction slowdowns.