Caterpillar IncCAT

Morningstar Rating

Stock Research and Analysis

by Adam Fleck, CFA

Caterpillar is the largest heavy-equipment manufacturer in the world and holds an especially dominant share in the U.S. market. With its rebounding North American end markets, we don't think Caterpillar has lost its competitive edge, although weak overseas Read more

Bulls Say

Caterpillar is the largest global manufacturer of heavy construction equipment. Although worldwide demand is largely still below its peak several years ago, we don't expect the firm to cede its dominant position.

Avoiding downtime is one of the most critical aspects for customers when making a purchase, and Caterpillar's extensive national dealer network and reputation for quality are key competitive advantages.

We estimate that Caterpillar and Komatsu together hold a nearly 50% worldwide market share. Although the two compete heavily on service, technology, and quality, we don't envision the need for either to enter a destructive price war over the near term, given their leading market positions.

Caterpillar has seen greater North American unit volume of late, leading to sharply increasing factory utilization and profitability versus a year ago. Read more

Bears Say

Although Caterpillar holds the largest global market share in its industry, it trails Komatsu in China, a key long-term growth region. Failure to provide a premium service network in the region could prevent Caterpillar from increasing price or competing with local players.

Caterpillar's suppliers have generally performed admirably thus far through the manufacturing recovery, but continued solid execution remains a key focus for the industry. Further volume increases in both the heavy equipment industry and tangential markets (such as automotive) could hamper these suppliers' ability to keep up with Caterpillar's needs.

Although not historically an acquisitive company, Caterpillar has allocated more than $10 billion for the purchase of German engine maker MWM, locomotive manufacturer EMD, and mining equipment OEM Bucyrus. The integration of these firms presents a continued near-term risk, and missteps (such as a large goodwill write-down related to ERA Mining, a smaller purchase) have occurred.

Caterpillar probably will face several quarters of near-term headwinds stemming from reduced mining equipment orders and slowing economic growth. The firm's profitability likely will suffer as a result. Read more

Management

CEO Doug Oberhelman took over when Jim Owens retired in 2010. Oberhelman joined Caterpillar in 1975 and was head of the engine division before taking the reins of the entire firm. Similarly, Ed Rapp ascended to the CFO position after years of service Read more

Profile

Based in Peoria, Ill., Caterpillar is the world's largest manufacturer of heavy construction machinery such as bulldozers, excavators, loaders, and equipment for surface Read more