ii view: Caterpillar passes on 2021 estimates

Covid is hurting but an enviable dividend track record remains intact. 

Fourth-quarter results to 31 December  

• Revenue down 15% to $11.2 billion
• Adjusted earnings per share down 22% to $2.12
• Quarterly dividend of $1.03 per share

Chief executive Jim Umpleby said:

“I’m proud of our global team’s continued resilience in safely navigating Covid-19 while continuing to provide the essential products and services the world needs. Our fourth-quarter and full-year results reflect the team’s agility in a challenging environment while executing our strategy for long-term profitable growth. We are well-positioned for the future and will emerge from the pandemic as an even stronger company.”

ii round-up:

Heavy industrial equipment maker Caterpillar (NYSE:CAT) has reported better than expected pandemic hit fourth-quarter earnings, although it failed to give investors any guidance for 2021 because of the ongoing uncertainty. 

A just over one-fifth drop in adjusted earnings per share to $2.12 beat Wall Street expectations for a fall below $1.75 per share. 

Caterpillar shares were little changed following the news, having almost doubled since late March pandemic lows. Shares for fellow heavy equipment maker Deere & Co (NYSE:DE) are up by more than 150% over the same time. 

A constituent of the Dow Jones 30 index, Caterpillar helps its customers pave roads, mine essential commodities or extract fuels to satisfy global energy demand. It employs over 100,000 people with nearly 60% of its sales made outside the USA in 2019.

Caterpillar, which agreed to buy the oil and gas equipment division of Weir Group (LSE:WEIR) in October, said full-year 2020 sales and revenues fell by 22% to $41.7 billion compared with $53.8 billion in 2019.

It previously declared a quarterly dividend of $1.03 per share, unchanged from previous quarters. During the year it paid dividends of $2.2 billion and repurchased $1.1 billion of its own stock. It held liquidity of $9.4 billion at the end of 2020. 

ii view:

Established in 1925, today Caterpillar operates across the three primary divisions of construction industries, resource industries and energy and transportation. Its network of 165 dealers serves over 190 countries. Construction equipment accounts for its largest slug of sales, followed closely by energy and transportation and then mining and product finance. 

For investors, a one-year forecast dividend yield in the region of 2.3% (not guaranteed) is not to be ignored. It has paid quarterly dividends every year since 1933 and, since 2009, its quarterly cash dividend has more than doubled. Both product and geographical diversity add to the positives, while the latest quarterly revenue fall of 15% compares to 23% in the prior third quarter. 

That said, a forecast one-year price/earnings (PE) ratio of over 30 compares to a three-year average of under 20, suggesting the shares are not obviously cheap. In all, and with the shares having rallied hard since last March, the likelihood of further upside will depend on the strength of economic recovery out of the pandemic. 

Positives: 

• Product and geographical diversity
• Long record of continued yearly dividend payments 

Negatives:

• Uncertain Covid clouded outlook
• Offering no 2021 guidance or estimates

The average rating of stock market analysts:

Strong hold