Caterpillar is an iconic manufacturer of heavy equipment, power solutions, and locomotives. It is currently the world’s largest manufacturer of heavy equipment with over 13% market share in 2021. The company is divided into four reportable segments: construction industries, resource industries, energy and transportation, and Caterpillar Financial Services. This week, I fundamentally analyze Caterpillar’s stock. I review Caterpillar’s annual report and its operating segments, analyze the key ratios, and derive the intrinsic value using Discounted Cash Flow (DCF) analysis. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account Caterpillar’s 2021 free cash flow of $4,726 million, an 8% growth rate of FCF (growth for the next 10 years), 10% discount rate, 2.427% long term growth rate (growth from the 10 year mark in the future to perpetuity), 549 million shares outstanding, and $25,954 million of long term debt, the DCF analysis yields us an intrinsic value of $125.80 per share.
0:24 Business Overview
7:59 Key Ratios Analysis
17:45 Discounted Cash Flow Analysis / Intrinsic Value
Caterpillar’s Website: here.
Morningstar Key Ratios Link: here.
Useful Resources here.
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