DCF Studio

    CAT · NYQ · Industrials

    Caterpillar Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 145.95

    Market price

    USD 808.99

    Implied upside

    -82.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 5.1% of revenue against depreciation of 3.4%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 30.2x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 145.95-82.0%
    Exit multiple
    USD 460.00-43.1%
    Market price
    USD 808.99

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn5bn10bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 70.6bnUSD 73.6bnUSD 76.9bnUSD 80.2bnUSD 83.8bn+4.4%
    EBITUSD 12.5bnUSD 13.0bnUSD 13.6bnUSD 14.2bnUSD 14.8bn+4.4%
    NOPATUSD 9.9bnUSD 10.3bnUSD 10.8bnUSD 11.2bnUSD 11.7bn+4.4%
    Add depreciation & amortisationUSD 2.4bnUSD 2.5bnUSD 2.6bnUSD 2.7bnUSD 2.8bn+4.4%
    Less capital expenditureUSD -3.6bnUSD -3.7bnUSD -3.9bnUSD -4.1bnUSD -4.2bn+4.4%
    Less increase in working capitalUSD 58.6mUSD 61.2mUSD 63.9mUSD 66.7mUSD 69.6m-4.4%
    Free cashflow to firmUSD 8.8bnUSD 9.1bnUSD 9.5bnUSD 10.0bnUSD 10.4bn+4.4%
    Discount factor0.94590.84620.75710.67730.6060-
    Present valueUSD 8.3bnUSD 7.7bnUSD 7.2bnUSD 6.7bnUSD 6.3bn-6.6%
    Present Value Of The ForecastUSD 36.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.398Reported 1.594, pulled toward 1.0 (Blume)
    Cost of equity12.69%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 371.9bn89.6% of capital
    Total debtUSD 43.3bn10.4% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC11.77%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 145.95

    65% of EV

    Forecast FCFF, final year
    USD 10.4bn
    Capex at depreciation, working capital in reinvestment
    USD 11.7bn
    Less reinvestment at g/ROIC (15.9% of NOPAT)
    USD -1.9bn
    Capitalised
    USD 9.9bn
    ROIC (reported)
    15.7%
    Terminal value, undiscounted
    USD 108.9bn
    Terminal value, discounted
    USD 66.0bn
    Enterprise value
    USD 102.3bn
    Less net debt
    USD 33.4bn
    Equity value
    USD 68.9bn

    Exit at 20.0x EBITDA

    Value per shareUSD 460.00

    86% of EV

    Terminal value, undiscounted
    USD 353.7bn
    Terminal value, discounted
    USD 214.3bn
    Enterprise value
    USD 250.6bn
    Less net debt
    USD 33.4bn
    Equity value
    USD 217.3bn

    Spread between methods: 104%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    9.78%190.54196.32202.83210.21218.69
    10.78%162.86166.70170.96175.69181.01
    11.77%140.57143.14145.95149.02152.40
    12.78%122.24123.96125.80127.77129.91
    13.78%106.91108.03109.21110.45111.78

    Outlined: this model. Green text: above today's price of 808.99. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year4.4%42.6%+38.2pp
    EBIT margin17.7%69.6%+51.9pp
    Discount rate11.8%4.7%-7.1pp
    Download as Excel

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    Yahoo Finance and RBA data. General information, not advice. Methodology.