Caterpillar Inc. (CAT)

Discount cash flow analysis

Sell Overvalued by 48.7%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Caterpillar Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Price history

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $43.85 $42.44 $41.07
Terminal Growth% 0 $44.31 $42.88 $41.50
  +1% $44.78 $43.34 $41.94

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $73.76 (overvalued by 11.66%) - 12 months ago
  • SethWellbourne created a new valuation of $0.00 (overvalued by 100.0%) - over 7 years ago
  • SethWellbourne created a new valuation of $11.85 (overvalued by 78.23%) - almost 8 years ago
  • derreck0218 created a new valuation of $29.89 (overvalued by 44.28%) - almost 8 years ago
  • derreck0218 created a new valuation of $0.00 (overvalued by 100.0%) - almost 8 years ago
  • SethWellbourne created a new valuation of $15.30 (overvalued by 49.8%) - over 8 years ago
  • SethWellbourne created a new valuation of $5.63 (overvalued by 79.55%) - over 8 years ago
  • afi created a new valuation of $23.22 (overvalued by 13.29%) - over 8 years ago
  • GordonGekko created a new valuation of $23.19 (overvalued by 11.86%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $42.88 (undervalued by 12.25%) - almost 9 years ago
  • GordonGekko created a new valuation of $67.52 (overvalued by 0.91%) - 9 years ago
  • GordonGekko created a new valuation of $65.85 (overvalued by 5.28%) - 9 years ago

Comments

Running The Numbers - intrinsic value of Caterpillar ($CAT)

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/11/running-the-numbers-intrinsic-value-of-caterpillar-cat/

Assumptions

Revenue: Reuters aggregates 13 analysts covering $CAT and these analysts have mean estimates of 2008 and 2009 revenues of US$47.7 billion and US$51.6 billion respectively. For our analysis we have used US$47.0 billion in 2008, US$51.0 billion in 2009 and US$53.5 billion in 2010.

Profitability: We have used an EBITDA margin of 14% to 2010. Reuters has $CAT‘s EBITD margin at 14.2% last year and 14.5% over the last five-years.

Capital Expenditure: We have assumed capital expenditures of US$2.25 billion per annum moving forward.

Discount Rate: 9.0%. You could make an argument for a discount rate anywhere in the 8-9% range.

Terminal Growth Rate: 3.0%. If global economic conditions improve - this growth rate could be slightly higher (3.5-3.75%).

Our analysis incorporates the cash and debt the $CAT balance sheet – Valuecruncher calculates a net debt number.

By TheCrunchBlog, almost 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 77,677
Net Debt (Long-term borrowings less cash): 27,307
Equity Value: 23,043
Number of Shares Outstanding: 603,000,000
Calculated value per share: $42.88

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.