While the broader market is reeling under pressure from economic uncertainty, shares of construction and mining equipment manufacturer Caterpillar (NYSE:CAT) hit a new 52-week high of $241.91 on December 21. CAT stock has gained about 27% in six months. Moreover, it gained about 20% in 2022 and outperformed the S&P 500 Index (SPX). CAT stock has an Outperform Smart Score on TipRanks.
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Let’s look at factors driving the CAT stock higher.
CAT Stock Benefits from Solid Financials
Despite macro headwinds and supply concerns, Caterpillar consistently delivered double-digit sales growth in the past several quarters (learn more about CAT’s financials here). During the Q3 conference call, management stated that the company witnessed increased sales across all regions and segments.
The growth reflected increased demand for its products due to continued spending on infrastructure products. Thanks to the strong demand, Caterpillar realized higher prices and benefitted from volume growth.
CAT generates about 25% of its revenues from residential construction. Despite the tightening of financial conditions due to inflation and higher interest rates in North America, residential construction remains relatively high.
Further, the positive impact of government-related infrastructure investments will likely support non-residential construction revenues. Moreover, higher commodity prices will support mining revenues.
Thanks to the favorable backdrop, the company continues to witness healthy demand for its products despite the weak macroeconomic conditions. This indicates that Caterpillar will deliver solid growth in the coming quarters. The company expects Q4 revenues to increase year-over-year and sequentially, reflecting higher order levels and backlogs. Also, the adjusted operating profit margins are projected to remain significantly higher in Q4 compared to the prior year.
Cowen & Co. analyst Matt Elkott has named CAT stock among his best idea for 2023. Elkott stated that since CAT is the world’s largest manufacturer of construction equipment, the company will benefit from “infrastructure spending in the US, India, and other world regions.”
What is the Forecast for Caterpillar Stock?
On TipRanks, CAT stock sports a Moderate Buy consensus rating based on eight Buy, five Hold, and one Sell recommendations. Meanwhile, due to the uptrend in its price, analysts’ average price target of $239.79 implies a marginal downside of 0.80%.
What stands out is that insiders sold CAT stock worth $29.4M in the last quarter. Further, hedge funds sold 490.3K CAT stock. Nevertheless, CAT stock sports an Outperform Smart Score of eight on TipRanks.
Bottom Line
CAT’s strong financial performance, management’s upbeat guidance, and strong demand are positives. However, the recent growth in its stock price, negative indicators from hedge funds and insiders, and an uncertain economic environment could play spoilsport.
