CAT – Market expectations are for cycle-high Uniform ROA, but management’s concerns about sales growth and costs imply this may be unwarranted

• Caterpillar Inc. (CAT:USA) currently trades near historical highs relative to UAFRS-based (Uniform) Assets, with a 2.6x Uniform P/B, implying fairly bullish expectations for the firm. However, given management’s concerns about sales growth and costs, this may be unwarranted
• Specifically, management is confident about their expectation for higher-period costs in their Construction Industries segment. Moreover, they appear concerned about the sustainability of segment-wide sales growth, and the impact of rising steel prices on materials costs in the second half. Should Uniform ROA fail to reach cycle-highs, as management sentiment indicates, multiple compression and equity downside would be warranted