Caterpillar, Inc.

CAT Details

Completion of Acquisition: Caterpillar, Inc. (NYSE: CAT) is engaged in the manufacture of construction, engines, turbines and mining equipment. The market capitalization of the company as on 06 April 2021, stood at ~$125.76 billion. As per a recent update, the company has completed the acquisition of the Oil & Gas Division of the Weir Group PLC. CAT believes that combining Weir Oil & Gas’ pressure pumping and pressure control portfolio with its engines will provide additional value to its customers.

FY20 Performance Update: The company posted full-year total sales and revenues of $41.7 billion for FY20. There was a decrease in sales compared to the prior year due to the lower end-user demand. The operating profit margin stood at 10.9%, and CAT reported a full-year profit of $5.46 per share in FY20. It returned around $3.4 billion to its shareholders through dividends and share repurchases during the year. CAT reported sales and revenues of $11.2 billion in Q4FY20 and a profit per share of $1.42. CAT recently announced the appointment of Gerald Johnson to the board of directors.

FY20 Financial Performance (Source: Company Reports)

Outlook: As per the company, it will look to continue to invest in its products and services, and is well-positioned for the future for growth initiatives post the pandemic phase.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company has decided to maintain the quarterly cash dividend of $1.03 per share, payable on February 19, 2021 to its shareholders. The stock of CAT is trading close to its 52-weeks’ high level of 237.78. The stock of CAT gave a positive return of ~52.20% in the past six months and a positive return of ~4.76% in the past one month. On a technical analysis front, the stock of CAT has a support level of ~$225.76 and a resistance level of ~$236.49. We have valued the stock using a P/CF multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average P/CF (NTM Trading multiple), considering the improvement in the liquidity of the company and a slight reduction in debt to equity ratio. For the purpose, we have taken peers such as Deere & Co (NYSE: DE), Generac Holdings Inc (NYSE: GNRC), General Electric Co (NYSE: GE), to name a few. Considering the expected upside in valuation, improved debt & liquidity position and completion of the acquisition of Weir Oil & Gas, we recommend a ‘Hold’ rating on the stock at the closing price of $230.64, down by 1.31% as on April 06, 2021.

CAT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Brookfield Infrastructure Partners L.P.

BIP Details

Business Update: Brookfield Infrastructure Partners L.P. (NYSE: BIP) is an infrastructure company that owns and operates high-quality assets in the utilities, transport, midstream and data infrastructure sectors. The market capitalization of the company as on 06 April 2021, stood at ~$16.13 billion. As per a recent update, Kinder Morgan, Inc and Brookfield Infrastructure Partners L.P. have agreed to sell a 25% minority stake in Natural Gas Pipeline Company of America LLC to a fund managed by Arclight Capital Partners, LLC for a consideration of ~$830 million. On the closing of the transaction, each of KMI and Brookfield Infrastructure will hold a 37.5% interest in NGPL.

FY20 Results Update: The company reported a revenue of $8.88 billion in FY20, compared to revenue of $6.59 billion in FY19. It delivered a net income of $394 million during the year, aided by the organic growth across its operations and synergy from its acquisitions. The cash position of the company was at $867 million as of 31 December 2020 and the total borrowings stood at $23,178 million.

FY20 Financial Performance (Source: Company Reports)

Outlook: As per the company, it is having a comfortable liquidity position at the start of 2021, and will look to pursue attractive opportunities going forward.

Valuation Methodology: Price to Cashflow Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The company has expressed its intention to acquire Inter Pipeline Ltd. For C$16.50 per share in a transaction pegged at C$13.5 billion. The stock of BIP is trading close to its 52-weeks’ high level of $55.20. The stock of BIP gave a positive return of ~45.79% in the past one year and a positive return of ~13.74% in the past six months. On a technical analysis front, the stock of BIP has a support level of ~$52.50 and a resistance level of ~$54.91. We have valued the stock using a price to cashflow multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average P/CF (NTM Trading multiple), considering the decent financial performance and comfortable cash balance. For the purpose, we have taken peers such as Azure Power Global Ltd (NYSE: AZRE), NiSource Inc (NYSE: NE), to name a few. Considering the current trading levels and steep returns in the past few months, we are of the view that most of the positive factors of the company have been discounted at the current juncture. Hence, we suggest investors to wait for better entry level and give an ‘Expensive’ rating on the stock at the closing price of $54.630, up by 0.04% as on April 06, 2021.

BIP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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