I like CAT the business and company in general, it is definitely one of the best among its peer group. But my enthusiasm for CAT is temporarily dampened due to Macro headwind. (Short term skeptic, long term bull)
The revenue streams are strategically diversified, less than 30% is from North America, (the good recovering economy), revenue stream may continue to weaken, unless 1) spending on infrastructure, 2)urbanization, 3)mining, 4)construction, 5)Capital Ex Investment, pick up, which are entirely possible. The reasons could include government stimulus spending, economy picking up around the world.
Revenue and Net Income have been increasing dramatically at least over the past 3 years, but Operating Cash flow has stayed relatively range bound.
This company operates on rather high leverage historically, and as a result the Return on Equity for last year has been spectacular. The current ratio is 1.4 with about 40 billion of Total Debt, the company has raised more debt capital since last year, and the Total share outstanding has increased from 628 to 666 million shares. The average nine years ROE has been about 33.89%, but that could be skewed because we went through the construction boom from housing and infrastructure both domestically and abroad, urbanization of emerging markets, and commodity boom for the past decade. The company has nevertheless, demonstrated uncanny ability to meet obligations, as well as expectation of revenue and income growth.
Buffett once said, he would rather buy a great company at a fair price, then a fair company at a great price. If we simply take the Net Income reported at face value, couple with the current consensus 5 year earning growth rate analysts predict, the fair value could be somewhere around $101.2/share. Please proceed with caution and an appropriate margin of safety as always.