Since the January 2016 low of $56 at the end of 2017, to a high of $173, this price trend shows, construction machinery and mining equipment manufacturer Caterpillar (NYSE:CAT), is one of the brightest star in the global industrial stocks in the past two years.
Since the January 2016 low of $56 at the end of 2017, to a high of $173, this price trend shows, construction machinery and mining equipment manufacturer Caterpillar (NYSE:CAT), is one of the brightest star in the global industrial stocks in the past two years.
Some people say that a strong return to Caterpillar, thanks to its strong leadership position in the manufacturing cycle of inertia; some people say that is superior to others the internal management efficiency into the motivation for it; others say that more should be attributed to positive effects brought about by Trump was elected president of the......
Under the various opinions, what has happened to the Caterpillar that doubled in two years in the stock price? What is its future trend? In view of the existence of these questions, it is necessary for us to analyze it from the following aspects.
01 business quality
Caterpillar is the world's leading building and mining equipment, diesel and natural gas engines, and industrial gas turbine manufacturers. In 2017, Caterpillar showed extraordinary strength in many industries and regions, including China's construction industry, North America's offshore oil and gas industry, and mining industry.
The company's biggest competitive advantage comes from product quality, scale effect and the efficient supply chain that has accumulated over the years. By using Lean Six Sigma strategy in product R & D, manufacturing and product support, Caterpillar's products are superior to the industry average in terms of quality and reliability.
The company's world-class distribution networks and supply chains have added to their competitive advantages to make it possible to meet the needs of different customers while increasing production.
At the same time, with the scale effect, Caterpillar can sell high-quality products at a competitive price, thereby enhancing customer loyalty and opening space for future growth.
In addition, Caterpillar has also frequently finalized supply agreements with strategic partners, which has enabled its market leadership to be consolidated.
For example, before the China national energy investment group and Caterpillar signed a strategic cooperation framework agreement for a period of five years, the overall plan for the future of Caterpillar and its local agents to the national energy investment group to provide sales and leasing of mining equipment, technology, product support services.
02 management efficiency
Caterpillar has recently experienced management readjustment.
In January 2017, Ann Bojun took over Douglas. O Bohman, as Caterpillar's new CEO, at the same time to the board of directors.
Douglas O Bohman has served as CEO since 2010. He has led Caterpillar to accelerate its growth. By implementing cost efficiency and lean manufacturing plan, the company has optimized the global manufacturing and operation.
In October 2016, European Manchester announced Boch early retirement, and the company has 35 years of experience. Bojun took over CEO.
After taking office, Ann Bojun announced a new strategy: using information oriented way (operation & implementation mode) to guide the company's decision-making process, and ultimately achieve sustained profitable growth.
According to the announcement issued by Caterpillar, the above strategy will achieve three goals:
By virtue of the company's core competencies in operation excellence - safety, quality, lean manufacturing and competitive cost principles, the company's advantages are enhanced.
Expand the company's solutions and provide solutions that integrate and meet differential needs to help customers succeed.
Increase the company's reliance on services, pay attention to digital solutions and after-sales market, so as to improve customer loyalty and further enhance the relationship between the company and its customers.
Since 2015, Caterpillar has been working on streamlining structure and cost control. Thanks to technological innovation and efficiency, the market share of Caterpillar mechanical products has been growing for five years, and the quality of products has also been improved.
As shown below, in the third quarter of 2017, company sales increased by more than $2 billion over the same period, and the profitability of major business sectors rose.
03 financial indicators
The success of Caterpillar is also reflected in financial indicators. The company uses large amounts of debt to finance mergers and acquisitions, and then uses stock repurchases and related strategies to buffer the adverse effects of mergers and acquisitions.
After 2008, the strong demand of emerging markets and energy industry, which was ignited by the economic recovery, pushed Caterpillar business to recover rapidly and hit the peak of revenue in 2012.
But then, shortly after the fall in commodity prices, the slowdown in China's economy, the low oil price and the slow demand for related equipment, Caterpillar's business declined.
In addition, the increase in sales costs has led to a narrowing of the company's profit margin. The volatility of the profit margin also reflects the ups and downs of the company's business.
As a high credit rating manufacturer, Carter Biller's debt cost is low. The level of debt the company began to rise from 2011, this is mainly because the company's $7 billion 600 million acquisition of Bucyrus international company, to occupy a space for one person in the field of new business.
After the acquisition, Caterpillar began to reduce its debt and start stock repurchases. The following chart shows the comparison of Caterpillar's previous years' net debt to total debt.
Thanks to cost control measures, Caterpillar's costs and gross interest rates have gradually stabilized. This is in line with the goal of the new strategy of the company management. The following chart shows the change in the company's capital structure.
The net cash flow generated by Caterpillar's operation is stable, thanks to its market leadership, high quality products and overseas business.
The industry pointed out that Credit Suisse Caterpillar held a conference call at the end of November 2017, the industry scale, China is the company's largest market in 2017, but Europe and Australia will also achieve business growth.
In the future, commodity prices, stable capital expenditures and consolidation in the machinery market will bring Caterpillar steady sales and cash flow.
04 trend analysis
For the US, the low unemployment rate, GDP growth, capital expenditure expansion and active fiscal policy all create favorable conditions for the development of industry.
In addition, the PMI and ABI index showed that the demand for residential projects increased significantly in 2017, indicating that the growth of future housing construction would be very strong.
From the international point of view, the growth potential of emerging markets is huge. Caterpillar, the demand of the product is not track drill out of the market will help the company to reduce costs. In addition, although China's macroeconomic situation has led to a slowdown in emerging market growth in 2018, demand from the global middle class is still supporting the company's business.
The industry has gone through volatility before, and no company can do it. However, Caterpillar still shows stronger strength than its competitors. The performance over the past few years is also better than the industry average level (as shown below, yellow solid line represents Caterpillar).
The rise of Caterpillar's share price is largely driven by the growth of corporate profits. Thanks to the improvement in the overall situation in the construction industry, Caterpillar's profits have gone beyond expectations since 2016.
US President Trump's support for the industry (the trillions of infrastructure projects) is also a long-term good. All of these are the support of the company's stock price rise.
05 risk hints
The potential risks around Caterpillar are mainly demographic factors, the slowdown of the emerging market economy, the fluctuation of the global economy, the decrease of investment in mining industry, and the increase of raw material prices.
However, the growth of the global middle class, the demand for new technology, the construction of emerging markets and the recovery of the US housing market will help the company to resist these risks. As the effect of the company's new strategy gradually appears, the long-term development of Caterpillar is worth looking forward to.
In short, under the trend of global economic expansion in 2018, the competitive advantage of products, the improvement of management level and the improvement of financial indicators will be the driving force for Caterpillar's share price to continue to rise.
