Caterpillar Inc.

CAT Details
 
CAT’s Cost Control Initiatives is a key Growth Catalyst: Caterpillar Inc.(NYSE: CAT) is the world’s top manufacturer of construction and mining equipment. The company is also engaged in dealing diesel and natural gas engines, diesel-electric locomotives along with industrial gas turbines. On 10 March 2020, the company showcased its latest products, services and technologies at CONEXPO 2020. The company is set to report its first quarter of fiscal 2020 results on April 28, 2020, before the market opens.
 
Fourth Quarter of FY19 Key Highlights: During the quarter, the company reported an adjusted profit per share of $2.63, better than the profit of $2.55 per share in 4QFY18. The company reported revenue of $13.1 billion, depicting a decrease of 8% year over year. During the quarter, robust cost control more than offset weaker end-user demand. Reduced inventory level of approximately $700 million by dealers impacted sales volume during the quarter, which, in turn, impacted the top-line growth. Lower-than-expected demand Construction Industries and Resource Industries adds to the woes. Geographically, the company saw a decline in sales. Revenue from Latin America, North America and EAME declined 15%, 13% and 5%, respectively.  Revenues from Asia Pacific region remained flat year over year. Operating margin stood at 14.1% in the reported quarter and expanded 100 basis points from the prior-year quarter.CAT repurchased $4 billion shares and paid dividends worth $2.1 billion in the fourth quarter. CAT exited FY19 with cash and short-term investments of $8.3 billion.
 

4HFY19 Key Highlights (Source: Company Reports)
 
Recent Update: The company recently updated with the global retail machinery sales growth numbers for the previous three-month ended February 2020 and according to that CAT’s worldwide machinery retail sales dipped 11%. Construction industries posted the lowest de-growth of 11%.
 
FY20 Outlook: For FY20, CAT anticipated adjusted earnings to be in the band of $8.50 and $10.00 per share. The company anticipates that dealers will persist to reduce inventories on the back of continuing worldwide economic ambiguity.
 
Valuation Methodology:P/E Multiple Based Relative Valuation
 
P/E Multiple Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock is quoting at $92.26 with a market capitalization of ~$50.75 billion. Currently, the stock is trading close to its 52-week low level of $99.11.The company continues to focus on strategic investments and cost cutting initiatives, which, in turn, will aid in long-term profitable progress. It’s existing balance sheet remains strong which will underpin inorganic growth opportunities. In the recent past, the stock has seen pain amid the ongoing volatility in crude oil prices and COVID-19. Considering, the current trading levels, guidance, business prospects and valuation, we have valued the stock using the P/E based relative valuation method. For this, we have taken peers like Deere & Co (NYSE: DE), Cummins Inc (NYSE: CMI), General Electric Co (NYSE: GE), to name few, and arrived at a target price of lower double-digit upside (in percentage terms).Hence, we give a ‘Hold’ recommendation on the stock at the current market price of $92.26, down 8.37% as on 12 March 2020.
 
 
CAT Daily Technical Chart (Source: Thomson Reuters)
 

General Electric Company

 

GE Details
 
GE Selected by Sanko Enerji to Offer Wind Turbine Solutions:General Electric Company (NYSE: GE) is a worldwide digital industrial company. It's products and services include jet engines, energy production solutions, power generation, medical imaging, industrial & financing products.On March 9, 2020, the company announced that its business unit GE Renewable Energy has obtained an onshore wind turbine contract from Sanko Enerji to deliver 12 of its Cypress units and two units of 3 MW for the Guney wind farm located in Turkey.
 
Updated FY20 Outlook: For FY20, the company restated its outlook and expects revenue to increase in the range of low single-digit on an organic basis. Adjusted Industrial profit margin is expected to grow organically in the band of 0 to 75 basis points. CAT predicts adjusted EPS in the range of $0.50 to $0.60 per share. Free cash flow is expected to be in the range of $2 billion to $4 billion.
 
COVID-19 Impact on 1QFY20 Outlook: For the 1QFY20, the company expects the coronavirus outbreak to negatively impact GE’s free cash flow of ~$300-$500 million. Whereas, operating profit is expected to be negatively impacted by approximately $200 million to $300 million. In the coming quarter, GE anticipates adjusted earnings to be ~ 10 cents per share, along with a negative free cash flow of $2 billion.
 

Outlook (Source: Company Reports)
 
Fourth Quarter of FY19 Key Highlights: During the quarter, the company reported adjusted EPS of $0.21, up 50% year over year. The company reported revenue of $26.2 billion, depicting an increase of 1% year over year.
 
Valuation Methodology:P/E Multiple Based Relative Valuation

P/E Multiple Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock closed at $7.23 with a market capitalization of ~$63.19 billion on 12 March 2020. Currently, the stock is trading close to its 52-week low level of $7.65.GE is dedicated to boost its long-term growth prospects, lowering leverage and improving business prospects. Considering, the current trading levels, we have valued the stock using the P/E based relative valuation method. For this, we have taken peers like Honeywell International Inc (NYSE: HON), 3M Co (NYSE: MMM), Illinois Tool Works Inc (NYSE: ITW), to name few, and arrived at a target price of lower double-digit upside (in percentage terms).Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $7.23, down 11.94% as on 12 March 2020.
 
 
 
GE Daily Technical Chart (Source: Thomson Reuters)

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