Caterpillar: Building a More Resilient Business Model Through Exemplary Capital Allocation

After taking a fresh look at industrial bellwether Caterpillar, we’ve raised our fair value estimate to $425 per share from $267 to reflect our more constructive view on the company’s growth prospects and that management has structurally increased its through-cycle margins north of 20% versus our prior view in the mid-teens. We’re maintaining our wide economic moat rating and are increasing our Capital Allocation Rating to Exemplary given management’s focus on profitable growth and maintainably higher through-cycle returns. This is in addition to generous shareholder remuneration via its progressive dividend and returning substantially all remaining free cash flow to shareholders via share repurchases.