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CAT – Market expectations are for Uniform ROA to improve, but management may be concerned about their financial strength, supply chain, and dealer inventory levels

July 6, 2020

  • Caterpillar Inc. (CAT:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 25.2x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about their financial strength, dealer inventory levels, and supply chain disruptions

  • Specifically, management may have concerns about increases in dealer inventory levels, lower recip oil and gas sales, and weakness in their oil and gas-related equipment business. Furthermore, they may be overstating the sustainability of reduced restructuring costs, their ability to mitigate supply chain disruptions, and the financial strength of their company and their customers. Also, they may be concerned  about the ability of dealers to decrease inventory levels, their use of Cat Command for hauling, and potential increases in past due payments and write-offs

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