The industrial machinery market has been growing steadily over the years, driven by the demand for automation and the modernization of production processes. The market growth is also fueled by the growth of the manufacturing sector, especially in developing countries. The global industrial machinery market is projected to grow at a CAGR of 5.3% by 2032.
Moreover, the rising urban population and stringent government regulations governing various aspects, including safety, noise emissions, as well as sustainability, are driving the market growth.
Against this backdrop, let’s compare two industrial machinery stocks to analyze which stock is built to last: Caterpillar Inc. (CAT) and Deere & Company (DE).
The Case for Caterpillar Inc. Stock
With a $179.38 billion market cap, Caterpillar Inc. (CAT) is a manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company operates through its four segments: Construction Industries; Resource Industries; Energy & Transportation; and Financial Products.
On August 13, CAT announced plans to expand its Lafayette Engine Center, enhancing its capacity to build and test new engines and provide aftermarket components. The expansion involves increasing the campus’ footprint, refurbishing equipment, and investing in additional equipment.
This move aims to meet the rising global demand for backup and prime power in data centers, fueled by the growing adoption of cloud computing and generative AI.
CAT’s stock has gained 27.4% over the past nine months to close the last trading session at $373.31.
CAT’s forward EV/EBIT of 14.55x is 10.4% lower than the industry average of 16.24x. Its forward non-GAAP P/E multiple of 16.07 is 19.2% lower than the industry average of 19.89.
CAT’s total sales and revenue for the fiscal second quarter (ended June 30, 2024) amounted to $16.69 billion, while its revenue from financial products stood at $849 million, up 9.8% over the prior-year quarter. The company’s adjusted profit and adjusted profit per share increased by 2% and 7.9% year-over-year to $3.76 billion and $5.99, respectively.
Analysts expect CAT’s revenue for the fiscal year ending December 2025 to grow 3.2% year-over-year to $67.36 billion, while its EPS for the same period is expected to increase 3.3% year-over-year to $22.82.
CAT’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality and Stability. CAT is ranked #27 out of 78 stocks in the A-rated Industrial - Machinery industry.
In addition to the POWR Ratings I’ve just highlighted, you can see CAT’s ratings for Growth, Momentum, Sentiment, and Value here.
The Case for Deere & Company Stock
Valued at $112.10 billion by market cap, Deere & Company (DE) engages in the manufacture and distribution of various equipment worldwide. The company operates through four segments: Production and Precision Agriculture; Small Agriculture and Turf; Construction and Forestry; and Financial Services.
DE’s stock has gained 9.9% over the past month to close the last trading session at $409.73.
DE’s forward non-GAAP P/E of 16.38x is 19.3% lower than the industry average of 20.29x. However, its forward EV/Sales of 3.86x is 103.7% higher than the industry average of 1.90x.
DE’s net sales and revenues for the fiscal third quarter ended July 28, 2024, decreased 17% year-over-year to $13.15 billion. Its net income and EPS declined 42% and 61.7% year-over-year to $1.73 billion and $6.29, respectively.
Analysts expect DE’s EPS for the quarter ending October 2024 to decline 50.6% year-over-year to $4.11, while its revenue for the same quarter is expected to decline 31.9% year-over-year to $9.39 billion. However, it surpassed Street revenue and EPS estimates in each of the trailing quarters.
DE’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to Neutral in our proprietary rating system.
DE has a C grade for Stability, Value, Sentiment, Quality, and Momentum. It is ranked #69 in the same industry.
Click here for the additional POWR Ratings for DE (Growth).
Caterpillar (CAT) vs. Deere (DE): Which Heavy Equipment Stock Is Built to Last?
Investing in heavy machinery stocks offers exposure to infrastructure growth and industrial demand, which tend to rise with economic development. The growing demand for housing and commercial properties like hospitals, offices, and government buildings, driven by population growth, is boosting construction activities.
This surge in development is fueling the heavy construction equipment market's expansion. Leading heavy equipment companies CAT and DE stand to capitalize on the optimistic industry outlook. However, CAT’s strong financial performance and cheap valuation favor it as the better heavy equipment stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Machinery industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CAT shares were trading at $368.41 per share on Friday afternoon, down $4.90 (-1.31%). Year-to-date, CAT has gained 26.15%, versus a 19.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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