October 12, 2012
Industrial
Caterpillar
Ticker: CAT
Recommendation: Buy
Current Price: $85.44
Price Target: $114.87
Investment Thesis
Trading Statistics
52 Week Price Range
Market Capitalization

CAT is coming off a record quarter in sales, up 22% from the
second quarter last year. CAT also achieved an all time record
quarter for profit: $2.54 a share. CAT will continue to have
record breaking quarters for profit as their business shifts more
towards the mining industry, (the highest margined business).

CAT will be a beneficiary of an improving housing market in
North America. The National Association of Home Builders
index measuring home builders’ confidence hit a 6 year high in
September. It is clear the housing market is beginning to show
signs of strength.

CAT’s growth will continue to be driven by large deals made
outside of the United States. CAT recently won multiple deals
with China Resource Cement and the Brazillian government
who will continue to demand large shipments of Caterpillar
machinery.
$77.95 - $116.96
$XX$XX.XX
$56,980 million
Dividend Yield
2.4%
Avg. Daily Volume (3M)
7.548 million
Short Interest
2.9 %
Insider Ownership
1%
Institutional Ownership
65%
Forecast Summary
UOIG Projections
2011 A
Q1 A
Q2 E
Q3 E
Q4 E
2012 E
Q1 E
Q2 E
Q3 E
Q4 E
2013 E
Net Sales ($M)
$60,138.0
$15,981.0
$17,374.0
$15,849.0
$17,321.0
$66,525.0
$17,676.1
$18,695.6
$17,656.0
$18,725.8
$72,753.5
Basic EPS ($)
7.75
2.45
2.63
2.29
2.62
10.00
2.72
2.96
2.70
2.90
11.27
$60,138.0
7.75
$15,981.0
2.45
$17,374.0
2.63
$18,000.0
2.25
$17,500.0
2.27
$68,855.0
9.60
$17,500.0
2.75
$18,500.0
2.75
$16,000.0
2.75
$18,000.0
2.75
$70,000.0
11.00
$60,138.0
7.75
$15,981.0
2.45
$17,374.0
2.63
$17,193.0
2.25
$18,666.0
2.33
$69,214.0
9.66
$16,601.0
2.30
$18,203.0
2.58
$18,146.0
2.48
$19,551.0
2.69
$72,501.0
10.05
Management Guidance
Net Sales ($M)
Basic EPS ($)
Consensus Estimates
Net Sales ($M)
Basic EPS ($)
Covering Analysts: Daniel Greenfield
1
University of Oregon Investment
Group
University of Oregon Investment Group
October 12, 2012
Business Overview
General Overview
Caterpillar Inc. was originally organized as Caterpillar Tractor Co. in
1925 in the State of California and was reorganized as Caterpillar
Inc. in 1986 in the State of Delaware. Caterpillar currently operates
under brands: “Anchor Coupling”, “AsiaTrak”, “Balderson”,
“Barber-Greene”, “Cat”, “Cat Financial”, “Cat Logistics”, “Cat
Reman”, “Cat Rental Store”, “E-ject”, “FG Wilson”, “Hindustan”,
“MaK”, “MWM”, “Olympian”, “Perkins”, “Prentice”, “Progress Rail”,
“SEM”, “Solar Turbines”, “Turbomach”, “Turner Powertrain Systems”,
“Verachtert” and “Xpart.” With company record sales of $60.138
billion in 2011, Caterpillar is the world’s leading manufacturer of
construction and mining equipment, diesel and natural gas
engines, industrial gas turbines and diesel-electric locomotives.
Caterpillar is also a leading services provider through Caterpillar
Financial Services Corporation (Cat Financial) as well as a leading
exporter. Through a global network of independent Caterpillar
dealers, Caterpillar has built long-term relationships with customers
around the world which is displayed by their dominant market
share in multiple countries.
Construction Industries: 33%
8%
33%
33%
26%
Construction Industry
Resource Industry
Power System
Financial Services
Caterpillar’s Construction Industries segment is primarily responsible
for supporting customers using machinery in infrastructure and
building construction applications. The majority of Caterpillar
machine sales in the Construction Industries segment are made in
the heavy construction, general construction, mining and quarry
and aggregate markets. Demand for construction machinery has
dramatically increased in 2010 and 2011 as the global economy
has returned to growth. In developing economies, machine sales
have been close to or above record levels. Caterpillar’s sales were
$5.340 billion in the second quarter of 2012, (their latest quarter),
which is an increase of about $400 million or 8% from the second
quarter of 2011. The sales increase was primarily driven by an
increase in demand in North America, when customers felt the
need to upgrade old fleets and replace old equipment. Sales in
this segment were flat in the EAME region and declined slightly in
Latin America as well as the Asia/Pacific regions. Customer
demand for construction machinery over the past decade has
shifted from developed to developing economies. While
customers in developed economies typically make purchasing
decisions based on productivity and performance, customers in
developing economies typically making decisions based on
purchase price. The machines and related parts in the
Construction Industries product portfolio include: backhoe loaders,
small wheel loaders, small track-type tractors, skid steer loaders,
multi-terrain loaders, mini excavators, compact wheel loaders,
select work tools, small to large track excavators, wheel
excavators, medium wheel loaders, medium track-type tractors,
track type loaders, motor graders and pipelayers.
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Resource Industry: 26%
Caterpillar’s Resource Industry segment accounted for 26% of total
revenue in 2011 fiscal year and is primarily responsible for
supporting customers using machinery in mining and quarry
processes but also serves forestry, paving and tunneling customers.
Caterpillar’s Resource Industry segment was transformed with their
acquisition of Bucyrus International Inc. which made Caterpillar
the industry leading provider of mining products. Globally and
nationally customers in this segment have responded to attractive
commodity prices. Sales in the second quarter of 2012 were $5.390
billion, up an astonishing 68% from the second quarter of 2011.
What is even more impressive is that the Bucyrus acquisition only
accounted for 37% of this growth which means that 31% of the
growth was organic. The Resource Industry product portfolio
includes the following machines and related parts: electric rope
shovels, draglines, hydraulic shovels, drills, highwall miners,
underground mining equipment, large track-type tractors, large
mining trucks, large electric drive mining trucks, tunnel boring
equipment, large wheel loaders, off-highway trucks, articulated
trucks, wheel tractor scrapers, wheel dozers, compactors, select
work tools, forestry products, paving products, machinery
components and electronic control systems.
Power Systems: 33%
Caterpillar’s Power Systems segment accounted for 33% of
revenue in the 2011 fiscal year. Caterpillar’s Power Systems
segment is primarily responsible for supporting customers using
reciprocating engines, turbines and related parts across industries
serving electric power, industrial, petroleum, marine applications
and rail-related business. Demand in the Power Systems segment
has also been strong. In the second quarter of 2012 sales were
$5.511 billion, which is an increase of about 12% from the second
quarter of 2011. Sales growth was also fueled by the acquisition in
October of 2011 of MWM Holding GmbH. MWM is a leading
supplier of natural gas and alternative- energy fuel engines. With
regulatory emissions standards from the Environmental Protection
Agency, (EPA), as strict as ever CAT sees their acquisition of MWM
as a way of giving their technologically a competitive advantage
in complying with the EPA’s rules and regulations. Once power
systems from MWM are fully integrated into CAT products, this
should drive revenue for the Power Systems segment as the “clean
energy” trend continues. The Power Systems portfolio includes:
reciprocating engine powered generator sets, integrated systems
used in the electric power generation industry, reciprocating
engines and integrated systems/ solutions for the marine and
petroleum industries, reciprocating engines supplied to the
industrial industry as well as Caterpillar machinery, turbines and
turbine-related services, diesel- electric locomotives and
components related to rail products and services.
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Financial Products: 8%
Caterpillar’s Financial Products segment accounted for 8% of total
revenue for the 2011 fiscal year. The business of Caterpillar’s
Financial Products segment is mainly conducted by Cat Financial,
a wholly owned subsidiary of Caterpillar whose primary goal is to
provide retail and wholesale financing alternatives for Caterpillar
products. Retail financing is typically comprised of financing
Caterpillar equipment, engines and machinery. Cat Financial also
provides financing for vehicles, marine vessels and power
generation facilities that usually incorporate Caterpillar products.
Cat Financial also provides wholesale financing to dealers and
purchases short-term receivables from Caterpillar and its
subsidiaries. Cat Financial is designed to increase the opportunity
for sales of Caterpillar products and generate financing income
for Cat Financial. Revenue from the Financial Products segment
was flat year over year and was mainly comprised of financing in
North America (66%).
Strategic Positioning
Lane 1 Strategy
Over the past couple of years Caterpillar has been spending a
significant amount of money constructing Product Distribution
Centers or PDCs. PDCs typically hold the most commonly
requested machines with the most commonly requested features
based on the geographic location of the PDC. PDCs are part of
what Caterpillar calls their “Lane 1 Strategy.” The Lane 1 Strategy
consists of Caterpillar dealers, being able to hold less inventory
because they know they have a PDC close by. Caterpillar’s Lane 1
Strategy is meant to achieve 3 goals: Increase sales, reduce
inventory, and lower overall costs. Lane 1 strategy will effectively
increase sales because while it typically takes over 14 days for
orders to get to customers, orders from PDCs typically take less
than 10 days. The shorter delivery time for machines will give
Caterpillar dealers a significant advantage over their competitors
with 23 PDCs already up and running. Caterpillar’s Lane 1 Strategy
will also effectively reduce inventories because it will persuade
customers to buy straight from the PDCs rather than place factory
orders, which can end up sitting in Caterpillar’s inventory for a
significant amount of time. Lane 1 Strategy will also enable dealers
to hold less inventory because they will have a PDC close by to
rely on, so instead of making sure they have a large stock of
certain generic machines, they can now rely on the PDCs for
commonly ordered machines and parts. Finally, the Lane 1
Strategy will also lower overall costs for Caterpillar. While a typical
customer may place an order with Caterpillar for a custom made
engine, and the specific Cat MineStar system, and have to wait
until 2013 to receive their order, the implicit assumption with the
Lane 1 Strategy is that these same customers will now see
machines readily available in 10 days in the PDCs and they will
begin to start making more generic orders. If customers really do
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increase the orders of generic machines, this will take cost out of
Caterpillar factories and reduce their overall costs.
Business Growth Strategies
Acquisitions
In July of 2011 Caterpillar became the leading product supplier to
customers in the mining industry with their acquisition of Bucyrus
International Inc. The acquisition was the largest Caterpillar has
made in over 50 years, financed by $4.5 billion in debt and $4.3
billion in cash. The Bucyrus acquisition is part of Caterpillar’s
strategy of slowly shifting more towards the mining business where
the products sold yield the best margins for Caterpillar and there
are the most aftermarket opportunities. In their most recent
quarter, Caterpillar has proven to be meeting their goals in terms
of dominating the mining business. In the second quarter of 2012,
their most recent quarter, Caterpillar generated 31% organic
growth in their resources segment and 37% growth in the same
segment attributable to Bucyrus. In the first quarter of 2012
Caterpillar saw 73% growth in their resources business, half of which
was organic while the other half was growth attributable to
Bucyrus. Caterpillar expects to see at least $500 million worth of
synergies created from the Bucyrus acquisition by 2015.
As part of Caterpillar’s aggressive strategy to grow their power
systems segment, they acquired MWM Holding GmBH on October
31, 2011. MWM is a leading global supplier of sustainable, natural
gas and alternative-fuel engines. With this purchase Caterpillar
wants to expand customer options for sustainable power
generation. The Environmental Protection Agency (EPA) is
continuously coming up with stricter and more specific regulations
in terms of power and engine efficiency. Caterpillar believes that
with the acquisition of MWM they will be ahead of the game in
terms of complying with EPA regulations. Caterpillar net purchase
was $774 million, financed with available cash. In the second
quarter of 2012, their latest quarter, MWM contributed to 4% of the
growth in the power systems segment. In the first quarter of 2012
MWM contributed to 3% of power systems growth. Overall, the
acquisition of MWM gives Caterpillar a strategic advantage over
their competitors in terms of complying with the EPA’s fuel emission
standards and as a result, Caterpillar should be able to spend less
time and resources on R & D in the future, considering a large
portion of R & D goes to the power systems segment.
Expansion
Caterpillar is consistently expanding through the creation of new
factories as well as expansions of existing ones. In 2012 Caterpillar
has announced expansions of existing factories in Arkansas, Texas,
Brazil and India. More specifically, for their construction industries
segment, over the next two years Caterpillar has announced: A
new facility in Xuzhou China for large hydraulic excavators, A new
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October 12, 2012
facility in Texas for hydraulic excavators, A new facility in Rayong
Thailand for tractors, A new facility in Wujiang, China for mini
hydraulic excavators and new capacity being installed in India.
Caterpillar breaks down their expansion this way in every
operating segment but their mission is clear: “Win in China.”
Caterpillar has created the slogan “Win In China” in order to make
clear that they intend to take the leading market share in China
by 2015. Caterpillar has also announced numerous other
expansion plans in China such as: an engine factory in Tianjin, a
truck facility in Xuzhou, a wheel loader plant in Tongzhou, and a
joint venture in Shaanxi. Aggressive expansion plans such as these
is what drove Caterpillar’s over 40% revenue growth in 2011.
Industry
Overview
The industrial machinery industry is highly sensitive to global
economic conditions and demand for construction machinery is
highly cyclical. Providers of industrial machinery such as Caterpillar
tend to do very well and experience immense growth in an
economic environment characterized by: low unemployment,
high consumer spending, and high levels of investment.
Specifically, Caterpillar does well in regions where infrastructure
spending, housing starts and commercial construction spending
are all high and growing. According to Ibis World, the construction
machinery manufacturing industry will grow at 7% annually from
2012 – 2017.
Macro Factors in the U.S.
2007-2012 Housing Starts in U.S.
In the United States a bottomed housing market and continuous
increases in infrastructure spending will fuel growth for the industrial
machinery industry, especially for Caterpillar. Just last month sales
of previously occupied homes and construction of single family
homes reached the highest level in two years. Existing home sales
in August were up 9.3% from the same month a year earlier and
were at the highest level since May of 2010 when first time home
buyers rushed to qualify for tax credit. Other positive housing data
in the U.S. from the second quarter of 2012 include:
 Home builders took out permits for new housing at a
seasonally annual adjusted rate (SAAR) of 756,000. This
pace is 5% higher than the first quarter of 2012 and 24%
higher than the same quarter a year ago.
 Home builders started construction on 739,000 new
housing units (SAAR) which is up 3% from the first quarter of
2012 and up 29% from the same quarter of last year.
 The median price of new homes sold was $235,300 which is
up 3% from the same quarter of 2011.
 The average price of new homes sold was $280,300 which
is up 5% from the same quarter of 2011.
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
Builders started construction on 210,000 (SAAR) new
multifamily units which is up an astounding 48% from a
year earlier.
While the list could continue on for positive housing data in the
U.S, it is important to note that overall construction levels in the
U.S. have also began to show signs of a recovery. Currently
spending on construction for 2012 is projected to be $808.1 billion
(SAAR) is up over 6% from a year earlier. Although improving from
the bottom, construction spending in the U.S. is still far below the
2008 peak of $1.1 trillion which displays the large amount of
upside left to come.
Macro Factors In China
While it is important to follow economic news out of China, it is
also important to realize that China only makes up a small portion
of Caterpillar’s revenue (3%). More importantly, China can be
used as a tool to determine how demand for commodities will
change over time because in the last few years, China has
consumed over 20% of commodities worldwide. For some
commodities, such as copper, China consumes a much larger
percentage than 20 (China consumes 40% of the world’s copper).
Lately there has been a lot of news about “slow” growth coming
out of China, it is important to note what “slow” growth for China
really means. In August of 2012 Industrial production grew at one
of the slowest paces China has seen, 9%. During the first 8 month
of 2012 fixed asset investment in China also grew at one of the
slowest paces China has seen, over 20%. (Fixed asset investment
includes building and equipment). Even though China’s GDP is
expected to be over 8% in each of the next 3 years, in early
September, China announced a stimulus package worth about
$157 billion dollars purely related to construction. The plan is
comprised of 55 large scale projects including the approval of 25
new subway lines and 13 new highway projects. Caterpillar is well
positioned to meet the new demand China will create from the
stimulus package.
Macro Factors in Africa
Although it is ranked the poorest continent in the world, Africa has
projected GDP growth of about 5% over the next couple years
and could reach GDP growth above 7% by the year 2015. Over
the past 5 years alone infrastructure investment in Africa has
increased 15%. Infrastructure accounted for over 35% of new
bank loans in Africa last year and Caterpillar has continuously
stressed that the growth they will see in Africa will keep their EAME
segment afloat as Europe continues to struggle with an estimated
average GDP of about 0% in years to come.
Coal
Although U.S. coal only makes up 3% of Caterpillar’s total sales;
coal, iron ore and copper make up the majority of Caterpillar’s
resource industry segment. Lately coal has been one of the most
hated commodities, with the EPA enforcing new emission and
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China GDP
October 12, 2012
“clean energy” standards it is estimated that as many as 12% of
older coal manufacturing plants may have to be shut down due
to increased costs from new EPA regulations. Although these short
term factors for coal are likely to hurt Caterpillar, the longer term
outlook for coal is still good. Caterpillar realizes that there is still a
huge market for coal all around the world and displayed so when
their CEO restated the fact that: the department of energy said
from 2008-2035 the demand for electricity will increase by 100%, or
double. Approximately 80% of this new demand will be met by
coal. Aside from being confident about the longer term outlook
for coal, Caterpillar has successfully entered the natural gas
space as well. For example, in a typical environment for
extracting natural gas, a company would need: a caterpillar solar
turbine to dig for natural gas, boats powered by Caterpillar
engines depending if the natural gas reserve is located near
water, caterpillar transmissions and engines depending on how
the gas is drilled or fracked, and Caterpillar generator systems in
order to move the gas to a well point for collection and through a
pipeline for use. Caterpillar has successfully gained market share
in the natural gas space and with their recent acquisition of MWM
they will continue to steal more market share.
World GDP (GWP)
16.00%
14.00%
Competition
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%
2006
2007
2008
2009
2010
2011
Caterpillar is the largest industrial machinery manufacturer in the
world and their competition differs depending on location. With
that being said, according to Ibis World, Caterpillar controls about
35% of the construction machinery market and the engines and
turbine market while the next closest competitor, Deere, controls
just over 7%. Caterpillar also sites Komatsu, as one of their largest
global competitors, especially in the Asia pacific market as well as
Cummins, Deere, Hitatchi and Volvo Group AB. Customers in
developing economies generally prioritize purchase price while
making their investment decisions while customers in developed
economies typically weigh productivity and other performance
criteria that contribute to lower lifetime and operating costs of the
machine. In response to increased demand in developing
economies, Caterpillar has introduced new, lower cost, product
offerings.
Management and Employee Relations
Douglas R. Oberhelman- Chairman and CEO
Oberhelman joined Caterpillar in 1975 and has held many
positions such as: senior finance representative, region finance
manager and district manager for the NA division, and managing
director and vice general manager for strategic planning.
Oberhelman was elected vice president in 1995 and was elected
a group president and a member of Caterpillar’s executive office
in 2002. As group president Oberhleman was in charge of financial
products, legal services, remanufacturing and corporate treasury.
Oberhleman was also in charge of rail, energy and power systems
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businesses. In October 2009 Oberhleman was named vice
chairman and CEO – elect. Oberhleman became chairman
November 1, 2010. Oberhelman holds a bachelor’s degree in
finance from Millikin University.
Edward Rapp- Chief Financial Officer and Group President
Edward Rapp has the responsibility for the Finance Services
Division, Human Services Division, Global Information Division,
Global Purchasing Division, and the Strategy and Business
Development Division. Rapp joined Caterpillar in 1979 where he
served as a pricing analyst and then moved on to become a
region manager for Europe. In 2000 Rapp became an Officer at
Caterpillar as the vice president of the EAME marketing division.
Rapp became a group president and CFO in 2007. Rapp holds a
B.A. in finance from the University of Missouri- Columbia and is a
graduate of the University of Illinois Executive development
program.
Management Guidance
Caterpillar EPS
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Caterpillar management has been known to set beatable
guidance and large ranges for earnings. For example, in 2009
Caterpillar management projected EPS in 2012 of $8-$10 and in
their latest conference call, in July, management has said they are
on pace to earn $9.60 a share. Although management sets
beatable guidance, Caterpillar has been known to change their
outlook quite continuously as global economic conditions change.
For example, Caterpillar came into 2012 with EPS expectations of
$9.25. After the first quarter of 2012 Caterpillar raised EPS
expectations to $9.50 and changed their full year revenue outlook
to $68 - $72 billion. In their second quarter conference call,
although management lowered revenue guidance to $68 - $70
billion, they raised their EPS outlook to $9.60 a share. Last month, in
their MineExpo conference, Caterpillar lowered their EPS
expectations for 2015. Previously set for $15 – $20 per share,
management lowered the range to $ 12- $18 per share although
they stated that: If global economic conditions pick back up they
will go right back to raising their EPS forecast to $15 - $20.
Management has also given guidance to lowering inventory by at
least $1 billion on the year and $2 - $3 billion in 2013. Caterpillar
management has stated that they are optimistic about the world
economy turning up in 2013 which will help fuel demand for their
machines.
Portfolio Strategy
The University of Oregon Investment Group currently does not hold
Caterpillar in any portfolio. Based on Caterpillar’s market cap,
expected growth, solid valuation and beta, I believe Caterpillar is
appropriate for both Tall Firs and the Svigals portfolios.
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Recent News
Caterpillar is Worth $95 On Long Term FundamentalsForbes 9/28/2012
“Caterpillar on Tuesday cut its earnings guidance from $15-$20
per share to $12-$18 per share for the year 2015. The cut was due
to declining mining activity globally due to softening of metal and
iron-ore prices. However, the sector continues to hold its long-term
growth factors of increasing global urbanization and growing
energy demand from emerging economies. And thus, we
anticipate the mining business of Caterpillar to recover post its
current short-term slowdown, and drive growth for the company
over the long-term. We currently have a stock price estimate of
$95.44 for the company.”
Caterpillar Inc Stock Buy Recommendation ReiteratedThesteet.com 9/26/2012
The street reiterated their buy on Caterpillar. Thestreet.com sites
Caterpillar’s strengths in multiple areas including: robust revenue
growth, notable return on equity, impressive record of earnings per
share growth, compelling growth in net income and increase in
stock price during the past year.
Caterpillar Reiterated at Overweight –Yahoo Finance
9/25/2012
Barclays reiterated their rating of overweight to Caterpillar
although their price target was lowered to $116. Their previous
price target for Caterpillar was $120.
Catalysts
Upside




Implementation of Lane 1 Strategy
Continuously improving U.S. housing market
Newly implemented Chinese stimulus plan
Successful integration of Bucyrus and MWM acquisition
Downside



Slowdown of the Chinese economy
Gloomy short- term outlook for Coal industry
Overall uncertainty and doubt about the global economy
including the U.S. fiscal cliff
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Comparable Analysis
Deere (50%)
“Deere and Company, incorporated in 1958, along with its
subsidiaries, operates in three segments: agriculture and turf
segment, construction and forestry segment and financial services
segment. The agriculture and turf segment primarily manufactures
and distributes a range of farm and turf equipment and related
service parts. The construction and forestry segment primarily
manufactures a range of machines and service parts used in
construction, earth moving, material handling, crawler dozers,
excavators and motor graders. The Financial Services segment
provides wholesale financing to dealers of the foregoing
equipment and provides operating loans.” – Reuters
Deere is weighted 50% because Deere has similar growth rates
and more importantly, is the closest in size and has a similar global
presence as Caterpillar. Deere’s business model is very similar to
Caterpillars, (multiple operating segments with a financial services
segment to provide aid to dealers). Deere also has a very similar
beta as Caterpillar.
Komatsu (20%)
“Komatsu, together with its subsidiaries, engages in the
development, manufacture, marketing and sale of various
industrial- use products and services. Its construction, mining and
utility equipment segment offers excavating equipment, such as
hydraulic excavators, mini excavators and backhoe loaders. The
company’s industrial machinery and others segment offers metal
forging and stamping presses; sheet-metal machines, plasma
cutting machines and press breakers.” –Yahoo! Finance
Along with having similar growth rates and beta as Caterpillar,
Caterpillar constantly lists Komatsu as their main competitor in
each segment. Although a competitor does not mean a
company is necessarily a good comparable, it is important to note
that Komatsu’s largest presence is in the Asia/ pacific region,
where it holds dominance. Caterpillar has made clear it wants to
expand in the Asia/pacific region, specifically in China where
Komatsu holds the majority market share. Komatsu’s large
presence in China parallels Caterpillar’s slogan: “Win in China”
which makes Komatsu an interesting comparable.
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Terex (10%)
“Terex Corporation manufactures capital goods and machinery
products worldwide. The company’s construction segment
provides off-highway trucks and material handlers, loader
backhoes, compaction equipment, mini excavators and skid steer
loaders. The company’s material handling and port solutions
segment provides standard and process cranes, rope and chain
hoists and electric motors. The company provides financing
solutions to assists customers in rental, leasing and acquisition of its
products.” – Yahoo! Finance
Terex was used as a comparable because Terex has extremely
similar revenue growth and EBITDA growth for the next two years.
Terex also operates in extremely similar segments as Caterpillar.
Like Caterpillar, Terex operates a financial services segment and
operates globally. Although Terex has similar features, it is a much
smaller company and has an extremely high beta which is why it is
only weighted at 10%.
Cummins Inc. (20%)
“Cummins Inc. designs, manufactures, distributes and services
diesel and natural gas engines, and engine-related component
products worldwide. It operates in four segments: Engine,
Components, Power generation and Distribution. The company
sells its products to original equipment manufacturers, distributors,
and other customers.” – Yahoo! Finance
Although Cummins’ product portfolio differs from Caterpillars,
Cummins is a solid comparable for multiple reasons. Besides the
fact that Cummins has a very similar Beta to Caterpillar, Cummins
also is the best comparable in terms of growth. Their revenue and
EBITDA growth is predicted to be very similar to Caterpillar’s and
their EPS expected growth looks almost identical.
Joy Global, Inc. (0%)
“Joy Global Inc. engages in the manufacture and servicing of
mining equipment for the extraction of coal, copper, iron ore, oil
sands and other minerals. The company operates in two segments,
Underground Mining Machinery and Surface Mining Equipment.
The company serves mining companies worldwide.”
– Yahoo! Finance
Although Caterpillar has a mining segment, mining only makes up
about 1/3 of Caterpillar’s revenue where as Joy Global is
completely a mining company. This fact, along with Joy’s higher
Beta illustrates that Joy’s risks as a firm are much different than
UOIG 12
University of Oregon Investment Group
October 12, 2012
Caterpillar’s. On top of that, there has been talk over the past few
months of General Electric acquiring Joy Global which I believe
has been partially priced into Joy Global’s stock price which
would skew the multiple.
Caterpillar Revenue Model
Discounted Cash Flow Analysis
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
Revenue Model
Revenue was determined by numerous factors. First, my top line
projections for growth were determined in each of Caterpillar’s 4
operating regions; North America, Latin America, Asia/Pacific and
EAME. After top line growth was projected, revenue in each
operating segment was projected based on the percentage it
historically made up for the region. In order to double check my
projections, I also looked at the percentage of top line revenue
each region made up to make sure my projections were
consistent. As you can see in the revenue model, Asia/Pacific and
North America trend up as a percentage of total revenue. This is
because I believe the housing market recovery in America and
Caterpillar’s emphasis on “Winning in China” will lead to higher
growth rates in these two regions.
Asia/Pacific
Last year Caterpillar won a critical deal with Chinese Resource
Cement and 2 other Chinese cement producers. The deal alone
led to the sale over 50 heavy vehicles in the last quarter and is
expected to continue to be a long term driver. Another Chinese
cement company, Conch Cement, also signed a deal with
Caterpillar for a field trial arrangement of over 775 off highway
trucks in 2011. Winning critical deals like these in China will be
crucial to the Asia/Pacific growth rates because China makes up
about 10% of that region in terms of sales and is usually used as a
gauge for how that region will perform. China also produces
about 40% of the world’s cement. The newly implemented
Chinese stimulus of $157 billion dollars will also be a driver.
According to a report by economists at HSBC Holdings Plc, China is
likely to announce even more tax cuts as well as spending on
infrastructure, public housing and social welfare to boost the
economy. Along with the Chinese stimulus other factors that will
fuel the Asia/Pacific region’s growth are:


India’s central bank reducing the amount of deposits
lenders must set aside as reserves last month
Philippine president increasing spending to a record
breaking $16 billion in roads and airports
UOIG 13
University of Oregon Investment Group
October 12, 2012


Malaysian Prime Minister boosting infrastructure spending
before the general elections
South Korea’s $5.3 billion in spending on infrastructure and
tax relief
North America/ EAME
The base case for growth in these two regions was primarily made
in the “Industry” section of this report but I will give a general
recap. North America should experience the best growth of all
segments from a recovering housing market. As house prices
rebound in America, home builders won’t be so reluctant to build
new homes anymore and will therefore order more equipment.
Caterpillar has stressed that there has been a lot of “pent up”
demand in the U.S, meaning that although home builders have
not been using their machinery to build, the machines have still
been aging. Therefore, the opportunity will arise for home builders
to replace older models of equipment. In the EAME segment,
Africa and the Middle East should hold up growth, but only on a
low scale since Caterpillar has projected growth in Europe to
remain relatively flat. With average GDP projections of around 5%
and increasing spending rates on infrastructure, Africa will be a
catalyst in this region while Europe, with average projected GDP
to be around 0%, will hold this region to low levels of growth.
Latin America
With average projected GDP of close to 5% in years to come,
Caterpillar has stated that Latin America will continue to show
healthy growth and this is displayed in my revenue model. Brazil,
which is typically used as a gauge for how the Latin region will do,
plans to add $150 billion to their economy in the next 5 years. One
major driver for Caterpillar was that Brazil recently gained full
authority to construct the world’s third largest hydroelectric dam –
Belo Monte. This project was approved in 2011 and is 100%
dependent on Caterpillar for machinery. To date, Caterpillar has
already sold over 685 machines and 77 generator sets to the
project alone and estimates potential for at least 300 more
machines and significant after market opportunities. Winning
major projects such as these will continue to fuel Caterpillar’s
dominance in Latin America.
Beta
SD
Weighting
1 year daily
1.51
0.07
20.00%
3 year daily
1.45
0.04
20.00%
3 year daily hamada
1.46
0.05
20.00%
1 year daily hamada
1.51
0.07
20.00%
5 year weekly
1.46
0.06
20.00%
Caterpillar Beta
1.48
Beta
To calculate beta I ran the: 1 year daily regression, 3 year daily
regression, 5 year weekly regression, 3 year daily Hamada and 1
year daily Hamada. My weighted average beta was 1.48.
Cost of Goods Sold
While commodity prices declining are generally negative for CAT,
recently there have been major decreases in the prices for
metallurgical coal. Metallurgical coal is higher grade coal, used in
the production of steel making. Steel is by far CAT’s largest input
cost at almost 75% of input costs. As the price of metallurgical coal
and steel continue to decline, CAT should see cost of goods sold
UOIG 14
University of Oregon Investment Group
October 12, 2012
trending lower as a percentage of revenue. On top of that,
Caterpillar’s Lane 1 Strategy and their shift towards highermargined mining equipment should also help suppress cost of
goods sold.
Gross Margin
33.00%
32.80%
Research and Development
32.60%
32.40%
Management has stated that they expect to increase R&D about
15% this year. After 2012 I held R&D relatively constant as a
percentage of revenue as Caterpillar will continuously invest in
R&D in order to stay ahead of the EPA’s emission standards for
their machines.
32.20%
32.00%
31.80%
31.60%
31.40%
31.20%
31.00%
2012
2013
2014
2015
2016
2017
Depreciation and Amortization
Caterpillar calculates depreciation and amortization using a
straight line method as well as an accelerating method
depending on the machine and its use. Caterpillar also generally
records part of depreciation in cost of goods sold and part in other
operating expenses depending on if the machine was sold or
rented. After removing depreciation from these line items, for the
sake of the DCF, I projected depreciation and amortization as a
percentage of revenue.
Capital Expenditures
Caterpillar’s capital expenditures are mainly related to the
opening and expansion of manufacturing plants. After going
through rapid expansion in China, Caterpillar’s management has
given guidance that they will slow capital expenditures down
significantly. Capital expenditures were projected as a
percentage of revenue.
Acquisitions
After making one of the largest acquisitions in company history,
Bucyrus, Caterpillar management has stated that it does not plan
on anymore large scale acquisitions for a while. Instead,
Caterpillar will still absorb some smaller companies and some
acquisition related costs of integrating Bucyrus. Caterpillar
management has also stated that acquisitions + cap ex will trend
down as a percentage of revenue. Acquisitions were projected as
a percentage of revenue.
Inventory
Inventory buildup has been a large problem for Caterpillar
recently with the China slowdown. Management has stated that
they will reduce inventory by at least $1billion by the end of 2012
and are hoping to reduce inventory by $2- $3 billion within the next
couple quarters. Lane 1 Strategy will help reduce inventories as
well as Caterpillar’s plan to start exporting excavators out of China
to satisfy orders in other regions of the world. Inventory was
projected in the first few years by lowering levels to management
guidance. After 2013 inventory was projected using the day’s
outstanding method.
UOIG 15
University of Oregon Investment Group
October 12, 2012
Recommendation
I recommend a buy to both the Svigals and the Tall Firs portfolio.
Caterpillar will continue to drive growth by landing big deals in
some of the fastest growing economies in the world such as China
and Brazil. Caterpillar’s margin improvement will also drive EPS
growth through their Lane 1 strategy and shift towards mining
machinery. Caterpillar will be a main beneficiary from a
recovering housing market in the U.S. Currently my comparable
analysis gives me and undervaluation of 18% and my DCF analysis
gives me an undervaluation of 50.90%. Caterpillar has shown
support in the $80.00 price range, I believe Caterpillar should be
bought, but, with a stop loss of $81 to mitigate the risk of stock
price depreciation as institutions exit at $80. Caterpillar’s overall
undervaluation is 34.45% with my price target at $114.87.
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
Beta
Market Risk Premium
27.00% Terminal Growth Rate
2.81% Terminal Value
1.48 PV of Terminal Value
7.00% Sum of PV Free Cash Flows
Considerations
Considerations
3.00%
156,002
96,489
31,635
Avg. Industry Debt/Equity
Avg. Industry Tax Rate
2011 Reinvestment Rate
% Equity
56.86% Firm Value
128,124
% Debt
43.14% Total Debt
39,316
Reinvestment Rate in Perpetuity
88,808
Cost of Debt
CAPM
WACC
58.29%
7.70%
192.41%
9.73%
Implied Return on Capital in Perpetuity
30.84%
688.792
Terminal Value as a % of Total
75.31%
9.13% Implied Price
128.93
Implied Terminal Year Multiple
Current Price
85.44
Undervalued
50.90%
5.24% Market Capitalization
13.15% Fully Diluted Shares
Terminal Free Cash Flow Growth Rate
DCF Price Target
Comparable Analysis Price Target
Current Price
Price Target
Undervalued
6.57
3.04%
Implied Price Weight
$128.93
50%
$100.81
50%
$85.44
$114.87
34.45%
UOIG 16
University of Oregon Investment Group
October 12, 2012
Appendix 1 – Relative Valuation
Comparables Analysis
CAT
($ in millions)
Stock Characteristics
Current Price
Beta
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
Growth Expectations
% Revenue Growth 2013E
% Revenue Growth 2014E
% EBITDA Growth 2013E
% EBITDA Growth 2014E
% EPS Growth 2013E
% EPS Growth 2014E
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
2013 Estimates
Revenue
Gross Profit
EBIT
EBITDA
Net Income
DE
KMTUY
TEX
CMI
50%
20%
10%
20%
Max
$92.14
3.73
0
10,069
21,157
3,398
582
0
984
32,418
60,266
Min
$19.52
1.40
Median
$53.25
1.88
Weight Avg.
$66.09
1.83
$85.44
1.48
$82.77
1.40
$19.52
1.99
$23.72
3.73
$92.14
1.77
61
653
842
19
0
114
2,636
4,426
2,086
3,077
1,079
282
0
291
18,286
21,983
5,875
11,706
2,215
216
0
442
23,787
39,368
12,055
27,261
5,103
46
0
689
56,980
91,239
10,069
21,157
3,398
19
0
392
32,418
60,266
4,089
3,811
1,013
582
0
984
19,052
26,521
61
2,342
842
230
0
114
2,636
4,426
83
653
1,145
334
0
190
17,520
17,445
7.7%
9.1%
11.9%
11.1%
32.8%
29.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2.6%
1.7%
3.6%
4.4%
6.8%
7.2%
5.0%
4.3%
7.2%
6.6%
10.4%
11.2%
9.4%
9.1%
16.2%
10.6%
12.7%
13.0%
4.4%
1.7%
6.4%
4.4%
7.4%
7.2%
2.6%
3.9%
3.6%
6.6%
6.8%
10.3%
7.1%
8.6%
8.8%
11.1%
32.8%
29.4%
7.7%
9.1%
11.9%
9.6%
10.4%
13.0%
27.0%
14.4%
18.2%
10.1%
20.8%
7.5%
9.3%
3.6%
26.5%
13.5%
16.2%
8.8%
25.9%
13.0%
15.8%
8.7%
31.8%
13.8%
18.1%
10.0%
26.1%
13.4%
15.7%
9.4%
27.0%
13.5%
18.2%
8.3%
20.8%
7.5%
9.3%
3.6%
26.9%
14.4%
16.7%
10.1%
$34,986
$9,146
$4,704
$5,503
$3,274
$8,315
$1,733
$620
$773
$300
$22,762
$6,141
$3,156
$4,002
$2,069
$27,429
$7,203
$3,676
$4,430
$2,495
$72,753
$23,100
$10,061
$13,135
$7,283
$34,986
$9,146
$4,704
$5,503
$3,274
$25,920
$7,002
$3,492
$4,728
$2,153
$8,315
$1,733
$620
$773
$300
$19,605
$5,281
$2,820
$3,277
$1,985
1.7x
6.6x
12.8x
11.0x
9.9x
0.5x
2.6x
6.2x
5.3x
8.8x
1.0x
3.5x
7.4x
5.7x
8.8x
1.3x
5.0x
9.9x
8.2x
9.4x
1.3x
3.9x
9.1x
6.95
7.8x
1.7x
6.6x
12.8x
11.0x
9.9x
1.0x
3.8x
7.6x
5.6x
8.8x
0.5x
2.6x
7.1x
5.7x
8.8x
0.9x
3.3x
6.2x
5.3x
8.8x
Valuation
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
P/E
Multiple
Implied Price
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
P/E
$87
$117
$95
$107
$99
Price Target
Current Price
Undervalued
$101
$85
18.0%
Weight
20%
0%
0%
50%
30%
UOIG 17
University of Oregon Investment Group
October 12, 2012
Appendix 2 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in millions)
Total Revenue
2007A
$44,958
% YoY Growth
Cost of Goods Sold
31500
2008A
2009A
2010A
2011A
Q1 A
Q2 A
$15,981
$17,374
Q3 E
Q4 E
$15,849
$17,321
2012 E
$51,324
$32,396
$42,588
$60,138
$66,525
14.2%
-36.9%
31.5%
41.2%
NA
NA
NA
NA
10.6%
37159
22263
28761
41741
10787
11980
10857
11865
45488
Q1 E
Q2 E
Q3 E
Q4 E
$17,676
$18,696
$17,656
$18,726
2013 E
10.6%
7.6%
11.4%
12090
12750
12041
2014 E
2015 E
2016 E
2017 E
$72,753
$79,360
$87,576
$94,898
8.1%
9.36%
9.1%
10.4%
8.4%
$99,188
4.5%
12771
49653
53965
59114
63771
66654
% Revenue
70.1%
72.4%
68.7%
67.5%
69.4%
67.5%
69.0%
68.5%
68.5%
68.4%
68.4%
68.2%
68.2%
68.2%
68.2%
68.0%
67.5%
67.2%
67.2%
Gross Profit
$13,458
$14,165
$10,133
$13,827
$18,397
$5,194
$5,394
$4,992
$5,456
$21,037
$5,586
$5,945
$5,615
$5,955
$23,100
$25,395
$28,462
$31,127
$32,534
Gross Margin
29.9%
27.6%
31.3%
32.5%
30.6%
32.5%
31.0%
31.5%
31.5%
31.6%
31.6%
31.8%
31.8%
31.8%
31.8%
32.0%
32.5%
32.8%
32.8%
Selling General and Administrative Expense
3821
4399
3645
4248
5203
1340
1517
1363
1490
5710
1502
1570
1465
1554
6093
6507
7269
7877
7935
% Revenue
8.5%
8.6%
11.3%
10.0%
8.7%
8.4%
8.7%
8.6%
8.6%
8.6%
8.5%
8.4%
8.3%
8.3%
8.4%
8.2%
8.3%
8.3%
8.0%
Research and Development Expenses
1404
1728
1421
1905
2297
587
632
713
693
2625
619
636
600
655
2510
2778
3065
3416
3769
% Revenue
3.1%
3.4%
4.4%
4.5%
3.8%
3.7%
3.6%
4.5%
4.0%
3.9%
3.5%
3.4%
3.4%
3.5%
3.5%
3.5%
3.5%
3.6%
3.8%
Interest Expense of Financial Products
1132
1153
1045
914
826
204
198
190
225
817
230
224
212
243
909
1032
1226
1329
1488
% Revenue
2.5%
2.2%
3.2%
2.1%
1.4%
1.3%
1.1%
1.2%
1.3%
1.2%
1.3%
1.2%
1.2%
1.3%
1.3%
1.3%
1.4%
1.4%
1.5%
383
457
1109
501
391
290
131
95
69
585
124
112
124
94
453
556
525
569
595
% Revenue
0.9%
0.9%
3.4%
1.2%
0.7%
1.8%
0.8%
0.6%
0.4%
0.9%
0.7%
0.6%
0.7%
0.5%
0.6%
0.7%
0.6%
0.6%
0.6%
Depreciation and Amortization
1797
1980
2336
2296
2527
661
631
634
693
2619
725
785
759
805
3074
3492
3941
4365
4662
% Revenue
4.0%
3.9%
7.2%
5.4%
4.2%
4.1%
3.6%
4.0%
4.0%
3.9%
4.1%
4.2%
4.3%
4.3%
4.3%
4.4%
4.5%
4.6%
4.7%
$4,921
$4,448
$577
$3,963
$7,153
$2,112
$2,285
$1,997
$2,286
$8,680
$2,386
$2,617
$2,454
$2,603
$10,061
$11,031
$12,436
$13,570
$14,085
10.9%
8.7%
1.8%
9.3%
11.9%
13.2%
13.2%
12.6%
13.2%
13.0%
13.5%
14.0%
13.9%
13.9%
13.8%
13.9%
14.2%
14.3%
14.2%
288
274
389
343
396
113
133
95
104
445
106
93
141
112
453
476
613
664
794
0.6%
0.5%
1.2%
0.8%
0.7%
0.7%
0.8%
0.6%
0.6%
0.7%
0.6%
0.5%
0.8%
0.6%
0.6%
0.6%
0.7%
0.7%
0.8%
Other Operating (Income) Expenses
Earnings Before Interest & Taxes
% Revenue
Interest Expense
% Revenue
Nonoperating Expense (Income)
% Revenue
Earnings Before Taxes
-320
-299
-381
-130
32
-88
-158
-127
-139
-511
-124
-131
-141
-150
-546
-714
-788
-949
-992
-0.7%
-0.6%
-1.2%
-0.3%
0.1%
-0.6%
-0.9%
-0.8%
-0.8%
-0.8%
-0.7%
-0.7%
-0.8%
-0.8%
-0.8%
-0.9%
-0.9%
-1.0%
-1.0%
4953
4473
569
3750
6725
2087
2310
2029
2321
8747
2404
2655
2454
2640
10153
11269
12611
13855
14283
11.0%
8.7%
1.8%
8.8%
11.2%
13.1%
13.3%
12.8%
13.4%
13.1%
13.6%
14.2%
13.9%
14.1%
14.0%
14.2%
14.4%
14.6%
14.4%
1485
953
-270
968
1720
504
610
548
627
2288
649
743
712
766
2870
3043
3405
3741
3856
30.0%
21.3%
-47.5%
25.8%
25.6%
24.1%
26.4%
27.0%
27.0%
26.2%
27.0%
28.0%
29.0%
29.0%
28.3%
27.0%
27.0%
27.0%
27.0%
Net Income
$3,468
$3,520
$839
$2,782
$5,005
$1,583
$1,700
$1,481
$1,694
$6,458
$1,755
$1,911
$1,742
$1,875
$7,283
$8,226
$9,206
$10,114
$10,427
Net Margin
7.7%
6.9%
2.6%
6.5%
8.3%
9.9%
9.8%
9.3%
9.8%
9.7%
9.9%
10.2%
9.9%
10.0%
10.0%
10.4%
10.5%
10.7%
10.5%
1,797
1,980
2,336
2,296
2,527
661
631
634
693
2,619
725
785
759
805
3,074
3,492
3,941
4,365
4,662
202
216
574
254
295
86
98
69
76
329
77
67
100
80
325
348
448
485
579
Operating Cash Flow
$5,467
$5,716
$3,749
$5,332
$7,827
$2,330
$2,429
$2,184
$2,463
$9,406
$2,557
$2,764
$2,602
$2,760
$10,683
$12,066
$13,594
$14,964
$15,668
% Revenue
12.16%
11.14%
11.6%
12.5%
13.0%
14.6%
14.0%
13.8%
14.2%
14.1%
14.5%
14.8%
14.7%
14.7%
14.7%
15.2%
15.5%
15.8%
15.8%
Current Assets
24,355
29,149
22,350
28,218
35,071
37,345
39,191
37,058
40,050
40,050
41,133
42,382
40,211
41,405
41,405
44,215
48,385
52,779
54,844
% Revenue
Less Taxes (Benefits)
Tax Rate
Add Back: Depreciation and Amortization
Add Back: Interest Expense*(1-Tax Rate)
% Revenue
Current Liabilities
% Revenue
54.2%
56.8%
69.0%
66.3%
58.3%
233.7%
225.6%
233.8%
231.2%
60.2%
232.7%
226.7%
227.7%
221.1%
56.9%
55.7%
55.2%
55.6%
55.3%
17,113
20,577
13,274
18,095
22,901
22,861
24,265
21,949
24,882
24,882
25,296
26,902
25,065
27,386
27,386
29,214
31,835
35,828
36,670
38.1%
40.1%
41.0%
42.5%
38.1%
143.1%
139.7%
138.5%
143.7%
37.4%
143.1%
143.9%
142.0%
146.2%
37.6%
36.8%
36.4%
37.8%
37.0%
Net Working Capital
$7,242
$8,572
$9,076
$10,123
$12,170
$14,484
$14,926
$15,109
$15,168
$15,168
$15,837
$15,479
$15,146
$14,018
$14,018
$15,001
$16,550
$16,951
$18,175
% Revenue
16.11%
16.70%
28.0%
23.8%
20.2%
90.6%
85.9%
95.3%
87.6%
22.8%
89.6%
82.8%
85.8%
74.9%
19.3%
18.9%
18.9%
17.9%
18.3%
Change in Working Capital
N/A
1330
504
1047
2047
2314
442
183
59
2998
669
(358)
(333)
(1127)
(1150)
983
1549
401
1223
Capital Expenditures
1700
2445
1504
1575
2515
844
706
800
800
3150
795
841
812
861
3310
3571
4204
4555
4563
% Revenue
3.8%
4.8%
4.6%
3.7%
4.2%
5.3%
4.1%
5.0%
4.6%
4.7%
4.5%
4.5%
4.6%
4.6%
4.6%
4.5%
4.8%
4.8%
4.6%
Acquisitions
229
117
19
1126
8184
63
517
60
60
700
200
200
200
200
800
1000
1000
1000
600
% Revenue
0.5%
0.2%
0.1%
2.6%
13.6%
0.4%
3.0%
0.4%
0.3%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.3%
1.1%
1.1%
0.6%
Unlevered Free Cash Flow
N/A
$1,824
$1,722
$1,584
($4,919)
($891)
$764
$1,142
$1,544
$2,558
$892
$2,081
$1,923
$2,826
$7,722
$6,512
$6,842
$9,008
$9,282
1116.8
1477.8
835.7
1906.9
1724.2
2478.5
5234
5040
6080
5741
0.25
0.50
0.75
1.00
1.25
2.25
3.25
4.25
5.25
Discounted Free Cash Flow
EBITDA
EBITDA Margin
5304
4905
1686
4464
7544
2402
2416
2092
2356
9266
2510
2730
2578
2697
10514
11587
12961
14140
14680
11.8%
9.6%
5.2%
10.5%
12.5%
15.0%
13.9%
13.2%
13.6%
13.9%
14.2%
14.6%
14.6%
14.4%
14.5%
14.6%
14.8%
14.9%
14.8%
UOIG 18
University of Oregon Investment Group
October 12, 2012
Appendix 3 – Revenue Model
Revenue Model- Total
($ in millions)
Construction Industries
2009A
8507
Resource Industries
2011A
Q1 A
5340
Q3 E
19667
59.54%
44.91%
26.3%
31.9%
32.7%
31.7%
30.7%
30.5%
5857
8667
15629
4778
5390
4935.34
47.98%
80.33%
% Growth
5062
Q2 A
13572
% Growth
% of Total
2010A
4837.9
Q4 E
Q1 E
Q2 E
Q3 E
Q4 E
2013 E
20524.2
5414.23
5785.37
5480.34
5905.96
22585.91
24756
27973
30634
31837
4.36%
6.96%
8.34%
13.28%
11.76%
10.05%
9.61%
12.99%
9.51%
3.93%
30.5%
30.9%
30.6%
30.9%
31.0%
31.5%
31.0%
31.2%
31.9%
32.3%
32.1%
5415.28
20518.62
5260.48
5653.69
5364.13
5718.07
21996.37
24289
26859
28590
30379
31.29%
10.10%
4.89%
8.69%
5.59%
7.20%
10.42%
10.58%
6.44%
6.26%
5284.3
2012 E
2014 E
2015 E
2016 E
2017 E
% of Total
18.1%
20.4%
26.0%
29.9%
31.0%
31.1%
31.3%
30.8%
29.8%
30.2%
30.4%
30.5%
30.2%
30.6%
30.7%
30.1%
30.6%
Power Systems
13389
15537
20114
4987
5511
5038.45
5487.355
21023.81
5762.93
5938.09
5602.36
5856.56
23159.93
24571
27549
29541
30571
16.04%
29.46%
4.52%
15.56%
7.75%
11.19%
6.73%
10.16%
6.09%
12.12%
7.23%
3.49%
41.3%
36.5%
33.4%
31.2%
31.7%
31.8%
31.7%
31.6%
32.6%
31.8%
31.7%
31.3%
31.8%
31.0%
31.5%
31.1%
30.8%
3139
2946
3003
761
764
713.94
786.86
3025.801
907.14
961.41
892.92
914.08
3675.537
4265.68
3909.15
4735.37
4935.16
% Growth
% of Total
Financial Products Segment
% Growth
(6.15%)
1.93%
.76%
19.20%
25.84%
25.07%
16.17%
21.47%
16.06%
(8.36%)
21.14%
4.22%
% of Total
9.7%
6.9%
5.0%
4.8%
4.4%
4.5%
4.5%
4.5%
5.1%
5.1%
5.1%
4.9%
5.1%
5.4%
4.5%
5.0%
5.0%
All Other Segments
1791
2156
2021
474
454
403.19
435.74
1766.928
429.3288
459.8887
416.8827
435.0539
1741.154
1893
1746
1894
1979
20.38%
(6.26%)
(12.57%)
(9.42%)
1.30%
3.40%
(.16%)
(1.46%)
8.74%
(7.81%)
8.48%
4.49%
2.0%
% Growth
% of Total
5.5%
5.1%
3.4%
3.0%
2.6%
2.5%
2.5%
2.7%
2.4%
2.5%
2.4%
2.3%
2.4%
2.4%
2.0%
2.0%
Inter-segment Sales
-287
-290
-296
-81
-85
-79.82
-88.53
-334.35
-98.014
-102.83
-100.68
-103.93
-405.4488
-415
-459
-495
-513
1.05%
2.07%
12.96%
21.01%
20.97%
26.13%
17.39%
21.26%
2.34%
10.71%
7.82%
3.62%
-0.7%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.6%
-0.5%
-0.6%
-0.6%
-0.6%
-0.5%
-0.5%
-0.5%
-0.5%
42588
60138
15981
17374
15849
17321
66525
17676.09
18695.62
17655.95
18725.79
72753.45
79359.68
87576.15
94897.96
99188.02
31.46%
41.21%
10.62%
10.61%
7.61%
11.40%
8.11%
9.36%
9.08%
10.35%
8.36%
4.52%
% Growth
% of Total
-0.9%
Total Revenue
32396
% Growth
Rev enue Model- North America
($ in millions)
Construction Industries
2009A
2532
% Growth
% of Total
Resource Industries
Power Systems
Financial Products Segment
All Other Segments
Q1 A
Q2 A
Q3 E
Q4 E
1780
1966
1766.7
1950
2012E
Q2 E
Q3 E
Q4 E
2013E
2014E
2015E
2016E
2017E
7462.7
Q1 E
2100
2187.69
2065.57
2239.75
8593.00
9717.85
11134.77
11969.88
12328.98
3.00%
45.69%
24.69%
17.98%
11.28%
16.92%
14.86%
15.15%
13.09%
14.58%
7.50%
25.5%
27.5%
29.2%
30.2%
30.0%
30.0%
29.9%
30.0%
30.2%
30.5%
31.0%
30.4%
31.0%
32.0%
32.0%
32.0%
2085
2866
4963
1560
1589
1531.14
1690
6370.14
1750
1811
1693.09
1806.25
7060.34
8150.45
8699.04
8977.41
9246.73
3.00%
37.46%
73.17%
28.35%
12.18%
13.97%
10.58%
6.88%
10.83%
15.44%
6.73%
3.20%
16.9%
17.8%
22.8%
25.6%
24.4%
26.0%
26.0%
25.5%
25.0%
25.0%
25.0%
25.0%
25.0%
26.0%
25.0%
24.0%
24.0%
5093
6376
8331
2178
2373
2061.15
2275
8887.15
2450
2535.4
2370.32
2528.75
9884.47
10344.81
12526.62
13466.12
13870.10
3.00%
25.19%
30.66%
6.68%
12.49%
6.84%
15.00%
11.15%
11.22%
4.66%
21.09%
7.50%
41.2%
39.6%
38.3%
35.7%
36.5%
35.0%
35.0%
35.6%
35.0%
35.0%
35.0%
35.0%
35.0%
33.0%
36.0%
36.0%
36.0%
1968
1773
1687
416
417
406.341
448.5
1687.841
560
565.032
507.9263
505.75
2138.71
2507.83
2087.77
2618.41
2696.96
3.00%
% Growth
% of Total
5985
62.24%
% Growth
% of Total
2011A
4108
20.5%
% Growth
% of Total
2010A
(9.91%)
(4.85%)
.05%
34.62%
35.50%
25.00%
12.76%
26.71%
17.26%
(16.75%)
25.42%
15.9%
11.0%
7.8%
6.8%
6.4%
6.9%
6.9%
6.8%
8.0%
7.8%
7.5%
7.0%
7.6%
8.0%
6.0%
7.0%
7.0%
936
1208
970
225
217
176.67
195
813.67
210
217.32
203.1705
216.75
847.24
940.44
695.92
748.12
770.56
3.00%
% Growth
29.06%
(19.70%)
(16.12%)
(6.67%)
.15%
15.00%
11.15%
4.13%
11.00%
(26.00%)
7.50%
% of Total
7.6%
7.5%
4.5%
3.7%
3.3%
3.0%
3.0%
3.3%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
2.0%
2.0%
2.0%
Corporate Items and Eliminations
-255
-238
-203
-57
-61
-53.00
-58.5
-229.501
-70
-72.44
-67.72
-72.25
-282.41
-313.48
-347.96
-374.06
-385.28
3.00%
% Growth
(6.67%)
(14.71%)
13.05%
22.81%
18.75%
27.78%
23.50%
23.06%
11.00%
11.00%
7.50%
% of Total
-2.1%
-1.5%
-0.9%
-0.9%
-0.9%
-0.9%
-0.9%
-0.9%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
Total Revenue North America
12359
16093
21733
6102
6501
5889
6500
24992
7000
7244
6772.35
7225
28241.35
31347.90
34796.17
37405.88
38528.06
30.21%
35.05%
15.00%
14.72%
11.43%
15.00%
11.15%
13.00%
11.00%
11.00%
7.50%
3.00%
37.79%
36.14%
38.18%
37.42%
37.16%
37.53%
37.57%
39.60%
38.75%
38.36%
38.58%
38.82%
39.50%
39.73%
39.42%
38.84%
% Growth
% of Total Revenue
38.15%
UOIG 19
University of Oregon Investment Group
October 12, 2012
Rev enue Model- Latin America
($ in millions)
Construction Industries
2009A
1087
Resource Industries
Power Systems
Financial Products Segment
All Other Segments
Corporate Items and Eliminations
33.3%
35.1%
34.8%
31.4%
30.0%
1155
1809
2831
690
876
Total Revenue Latin America
839.1
Q1 E
Q2 E
Q3 E
Q4 E
2013E
2014E
2015E
2016E
2017E
2950.1
688.43
785.66
787.52
925.69
3187.31
3479.74
3640.68
4021.19
4262.46
(3.12%)
(.23%)
7.48%
14.13%
10.32%
8.04%
9.18%
4.63%
10.45%
6.00%
30.0%
31.4%
31.0%
31.5%
32.0%
32.0%
31.7%
32.0%
31.0%
32.0%
32.0%
920
1118.8
3604.8
866.09
960.26
935.18
1099.26
3860.78
4023.45
4462.77
4649.50
4928.47
56.62%
56.50%
27.33%
25.52%
9.62%
1.65%
(1.75%)
7.10%
4.21%
10.92%
4.18%
6.00%
29.4%
32.6%
34.8%
37.6%
40.0%
40.0%
38.3%
39.0%
38.5%
38.0%
38.0%
38.3%
37.0%
38.0%
37.0%
37.0%
1319
1900
2363
491
618
586.5
713.235
2408.735
555.19
636.01
639.86
752.13
2583.18
2827
3171
3267
3463
44.05%
24.37%
1.94%
13.07%
2.91%
9.10%
5.45%
7.24%
9.45%
12.15%
3.04%
6.00%
33.8%
30.9%
27.2%
24.8%
26.5%
25.5%
25.5%
25.6%
25.0%
25.5%
26.0%
26.0%
25.7%
26.0%
27.0%
26.0%
26.0%
282
308
361
97
97
92
111.88
397.88
88.83
99.77
86.14
101.25
375.98
434.97
352.32
502.65
532.81
9.22%
17.21%
10.22%
(8.42%)
2.85%
(6.37%)
(9.50%)
(5.50%)
15.69%
(19.00%)
42.67%
6.00%
7.2%
5.0%
4.2%
4.9%
4.2%
4.0%
4.0%
4.2%
4.0%
4.0%
3.5%
3.5%
3.7%
4.0%
3.0%
4.0%
4.0%
75
108
103
21
17
23
27.97
88.97
33.311
24.942
24.61
28.93
111.79
136
147
157
167
44.00%
(4.63%)
(13.62%)
58.62%
46.72%
7.00%
3.42%
25.65%
21.59%
8.00%
7.00%
6.00%
1.9%
1.8%
1.2%
1.1%
0.7%
1.0%
1.0%
0.9%
1.5%
1.0%
1.0%
1.0%
1.1%
1.25%
1.25%
1.25%
1.25%
-15
-19
-30
-7
-8
-11.5
-13.985
-40.485
-11.10
-12.47
-12.31
-14.46
-50.3435
-27
-29
-31
-33
26.67%
57.89%
34.95%
58.62%
55.89%
7.00%
3.42%
24.35%
(46.00%)
8.00%
7.00%
6.00%
-0.4%
-0.3%
-0.3%
-0.4%
-0.3%
-0.5%
-0.5%
-0.4%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.25%
-0.25%
-0.25%
-0.25%
3903
6154
8673
1982
2331
2300
2797
9410
2220.74
2494.17
2461
2892.79
10068.7
10874.20
11744.13
12566.22
13320.19
57.67%
40.93%
8.50%
12.05%
7.00%
7.00%
3.42%
7.00%
8.00%
8.00%
7.00%
6.00%
14.45%
14.42%
12.40%
13.42%
14.51%
16.15%
14.15%
12.56%
13.34%
13.94%
15.45%
13.84%
13.70%
13.41%
13.24%
13.43%
% Growth
% of Total Revenue
690
2012E
29.6%
% Growth
% of Total
731
Q4 E
27.9%
% Growth
% of Total
690
Q3 E
3045
% Growth
% of Total
Q2 A
48.68%
% Growth
% of Total
Q1 A
2048
% Growth
% of Total
2011A
88.41%
% Growth
% of Total
2010A
12.05%
Rev enue Model- EAME
($ in millions)
Construction Industries
2009A
2057
Resource Industries
Power Systems
Financial Products Segment
All Other Segments
Corporate Items and Eliminations
1087.2
Q1 E
Q2 E
Q3 E
Q4 E
2013E
4702.2
1198.61
1213.22
1103.45
1079.96
4595.24
4879
5344
5847
5834
(1.38%)
(2.79%)
(8.92%)
5.09%
(.67%)
(2.27%)
6.17%
9.53%
9.42%
(.22%)
29.0%
29.4%
30.0%
31.0%
32.0%
31.0%
1005.48
4161.47
4391
4654
4568
5082
1.61%
5.51%
6.00%
(1.85%)
11.24%
27.0%
26.6%
27.0%
27.0%
25.0%
27.0%
1452.36
6138.38
6180
6378
6944
6964
5.46%
10.44%
.67%
3.21%
8.86%
.29%
39.0%
39.3%
38.0%
37.0%
38.0%
37.0%
29.3%
32.3%
31.8%
31.9%
30.0%
30.0%
31.0%
30.0%
29.5%
29.0%
1737
3228
1030
1142
945
978.48
4095.48
1038.80
1089.84
1027.35
29.53%
85.84%
26.87%
.85%
(4.57%)
8.71%
2.76%
15.1%
17.3%
21.9%
26.6%
27.3%
27.0%
27.0%
27.0%
26.0%
26.5%
27.0%
4405
4393
5752
1377
1474
1330
1377.12
5558.12
1598.15
1603.92
1483.95
(.27%)
30.94%
(3.37%)
16.06%
8.81%
11.58%
43.8%
39.0%
35.5%
35.3%
38.0%
38.0%
36.6%
40.0%
39.0%
39.0%
103
102
70
72.48
427
438
(13.74%)
2.58%
5.6%
4.3%
3.0%
2.7%
2.4%
2.0%
605
538
585
144
135
112
(11.07%)
8.74%
6.8%
5.4%
4.0%
3.7%
3.2%
3.2%
3.2%
3.3%
2.2%
2.7%
2.3%
-1
-14
-32
-8
-7
-7
-7.248
-29.248
-7.99
-8.23
-11.42
1300.00%
128.57%
(8.60%)
(.12%)
17.50%
63.07%
2.76%
% Growth
% of Total
1050
2012E
1341
495
1332
Q4 E
23.1%
49.5%
1233
Q3 E
62.12%
% Growth
% of Total
Q2 A
42.98%
% Growth
% of Total
Q1 A
4768
% Growth
% of Total
2011A
2941
% Growth
% of Total
2010A
% Growth
2014E
2015E
2016E
2017E
347.48
79.91
102.82
114.15
111.72
408.59
487.87
517.15
548.17
564.62
(20.67%)
(22.42%)
.80%
63.07%
54.14%
17.59%
19.40%
6.00%
6.00%
3.00%
2.0%
2.3%
2.0%
2.5%
3.0%
3.0%
2.6%
3.0%
3.0%
3.0%
3.0%
115.968
506.97
87.90
111.04
87.52
81.93
368.38
358
379
402
414
(13.34%)
(38.96%)
(17.75%)
(21.86%)
(29.35%)
(27.34%)
(2.88%)
6.00%
6.00%
3.00%
2.2%
2.4%
2.2%
2.2%
2.2%
2.2%
-7.45
-35.08
-33
-34
-37
-38
19.94%
(7.28%)
6.00%
6.00%
3.00%
% of Total
0.0%
-0.1%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.3%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
Total Revenue EAME
8902
10022
14739
3879
4178
3500
3624
15181
3995.37
4112.61
3805
3724
15636.98
16262.46
17238.21
18272.5
18820.67
12.58%
47.07%
3.00%
3.00%
(1.57%)
8.71%
2.76%
3.00%
4.00%
6.00%
6.00%
3.00%
23.53%
24.51%
24.27%
24.05%
22.08%
20.92%
22.82%
22.60%
22.00%
21.55%
19.89%
21.49%
20.49%
19.68%
19.25%
18.97%
% Growth
% of Total Revenue
27.48%
UOIG 20
University of Oregon Investment Group
October 12, 2012
Rev enue Model- Asia/Pacific
($ in millions)
Construction Industries
2009A
2831
Resource Industries
Power Systems
Financial Products Segment
All Other Segments
Corporate Items and Eliminations
Total Revenue Asia/Pacific
1408
Q1 E
Q2 E
Q3 E
Q4 E
2013E
2014E
2015E
2016E
2017E
5409.2
1427.19
1598.80
1523.81
1660.56
6210.359
6680
7853
8796
9411
(7.83%)
5.02%
21.95%
14.47%
17.94%
14.81%
7.56%
17.56%
12.00%
7.00%
43.4%
39.1%
33.8%
30.0%
32.0%
32.0%
31.9%
32.0%
33.0%
33.0%
34.0%
33.0%
32.0%
33.0%
33.0%
33.0%
2255
4607
1498
1783
1539.2
1628
6448.2
1605.59
1792.59
1708.51
1807.08
6913.776
7724
9043
10395
11122
76.72%
104.30%
39.97%
7.18%
.54%
11.00%
11.00%
7.22%
11.72%
17.08%
14.95%
7.00%
17.6%
21.9%
30.7%
37.3%
40.9%
37.0%
37.0%
38.1%
36.0%
37.0%
37.0%
37.0%
36.8%
37.0%
38.0%
39.0%
39.0%
2572
2868
3668
941
1046
1060.8
1122
4169.8
1159.59
1162.76
1108.22
1123.32
4553.9
5219
5473
5864
6274
11.51%
27.89%
13.68%
23.23%
11.16%
4.47%
.12%
9.21%
14.60%
4.88%
7.13%
7.00%
35.6%
27.8%
24.5%
23.4%
24.0%
25.5%
25.5%
24.6%
26.0%
24.0%
24.0%
23.0%
24.2%
25.0%
23.0%
22.0%
22.0%
394
438
517
145
148
145.6
154
592.6
178.40
193.79
184.70
195.36
752.26
835.01
951.91
1066.13
1140.76
11.17%
18.04%
14.62%
23.03%
30.94%
26.86%
26.86%
26.94%
11.00%
14.00%
12.00%
7.00%
5.4%
4.2%
3.4%
3.6%
3.4%
3.5%
3.5%
3.5%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
175
302
363
84
85
91.52
96.8
357.32
98.12
106.59
101.59
107.45
413.74
459
524
586
627
72.57%
20.20%
(1.56%)
16.81%
25.40%
11.00%
11.00%
15.79%
11.00%
14.00%
12.00%
7.00%
2.4%
2.9%
2.4%
2.1%
1.9%
2.2%
2.2%
2.1%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
-16
-19
-31
-9
-9
-8.32
-8.8
-35.12
-8.92
-9.69
-9.24
-9.77
-37.61
-42
-48
-53
-57
18.75%
63.16%
13.29%
(.89%)
7.66%
11.00%
11.00%
7.10%
11.00%
14.00%
12.00%
7.00%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
4018
4364
4160
4400
28519.1
-0.2%
7232
% Growth
% of Total Revenue
1331.2
2012E
1276
% Growth
% of Total
1311
Q4 E
39.1%
% Growth
% of Total
1359
Q3 E
5869
% Growth
% of Total
Q2 A
31.15%
% Growth
% of Total
Q1 A
4475
% Growth
% of Total
2011A
58.07%
% Growth
% of Total
2010A
22.32%
10319
14993
42.69%
45.30%
24.23%
24.93%
25.14%
25.12%
26.25%
25.40%
16942
4459.98
4844.84
4617.6
4884
18806.42
20875.13
23797.64
26653.36
13.00%
11.00%
11.02%
11.00%
11.00%
11.00%
11.00%
14.00%
12.00%
7.00%
25.47%
25.23%
25.91%
26.15%
26.08%
25.85%
26.30%
27.17%
28.09%
28.75%
UOIG 21
University of Oregon Investment Group
October 12, 2012
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
Total Revenue
Current Assets
Receivables- Trade
Days Sales Outstanding A/R
% of Revenue
Receivables- Finance
Days Sales Outstanding A/R
% of Revenue
Deferred and Refundable Income Taxes
Days Outstanding
% of Revenue
Prepaid Expenses
Days Prepaid Expense Outstanding
% of Revenue
Inventories
Days Inventories Outstanding
% of Revenue
Total Current Assets
% of Revenue
Current Liabilities
Short Term Borrowings
% of Revenue
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Expenses
Days Charges Outstanding
% of Revenue
Accrued Wages
% of Revenue
Customer Advances
% of Revenue
Dividends Payable
% of Revenue
Other Current Liabilities
% of Revenue
Total Current Liabilities
% of Revenue
2007A
Q1 E
Q2 E
Q3 E
Q4 E
$32,396
2008A
$51,324
2009A
$32,396
2010A
$42,588
2011A
$60,138
Q1 A
$15,981
Q2 A
$17,374
Q3 E
$15,849
Q4 E
$17,321
2012 E
$66,525
$17,676
$18,696
$17,656
$18,726
$72,753
$79,360
$87,576
$94,898
$99,188
8,249
92.94
25.46%
7,503
84.53
23.16%
816
9.46
2.52%
583
6.76
1.80%
7,204
83.47
22.24%
24,355
75.18%
9,397
67.01
18.31%
8,731
62.26
17.01%
1,223
12.05
2.38%
1,017
10.02
1.98%
8,781
86.49
17.11%
29,149
56.79%
5,611
63.22
17.32%
8,301
93.53
25.62%
1,216
19.94
3.75%
862
14.13
2.66%
6,360
104.27
19.63%
22,350
68.99%
8,494
72.80
19.94%
8,298
71.12
19.48%
931
11.82
2.19%
908
11.52
2.13%
9,587
121.67
22.51%
28,218
66.26%
10,285
62.42
17.10%
7,668
46.54
12.75%
1,580
13.82
2.63%
994
8.69
1.65%
14,544
127.18
24.18%
35,071
58.32%
10,370
59.05
64.89%
7,931
45.16
49.63%
1,501
12.66
9.39%
1,032
8.71
6.46%
16,511
139.29
103.32%
37,345
233.68%
10,443
54.70
60.11%
8,383
43.91
48.25%
1,685
12.80
9.70%
1,336
10.15
7.69%
17,344
131.74
99.83%
39,191
225.57%
9,751
56.60
61.52%
7,752
45.00
48.91%
1,475
12.50
9.31%
1,180
10.00
7.45%
16,900
143.21
106.63%
37,058
233.82%
11,767
62.50
67.93%
9,037
48.00
52.17%
1,612
12.50
9.31%
1,290
10.00
7.45%
16,344
126.73
94.36%
40,050
231.22%
11,767
64.56
17.69%
9,037
49.58
13.58%
1,612
12.94
2.42%
1,290
10.35
1.94%
16,344
131.14
24.57%
40,050
60.20%
12,432
64.00
70.33%
9,712
50.00
54.95%
1,661
12.50
9.40%
1,329
10.00
7.52%
16,000
120.43
90.52%
41,133
232.70%
13,251
64.50
70.88%
10,478
51.00
56.04%
1,751
12.50
9.37%
1,401
10.00
7.49%
15,500
110.62
82.91%
42,382
226.69%
12,378
64.50
70.11%
9,979
52.00
56.52%
1,675
12.80
9.49%
1,178
9.00
6.67%
15,000
114.61
84.96%
40,211
227.75%
13,273
64.50
70.88%
10,700
52.00
57.14%
1,824
13.00
9.74%
1,263
9.00
6.75%
14,344
102.21
76.60%
41,405
221.11%
13,273
64.38
18.24%
10,700
53.68
14.71%
1,824
13.41
2.51%
1,263
9.28
1.74%
14,344
105.44
19.72%
41,405
56.91%
13,915
64.00
17.53%
11,523
53.00
14.52%
1,922
13.00
2.42%
1,478
10.00
1.86%
15,376
104.00
19.38%
44,215
55.72%
15,434
64.50
17.62%
12,682
53.00
14.48%
2,180
13.50
2.49%
1,454
9.00
1.66%
16,636
103.00
19.00%
48,385
55.25%
16,900
65.00
17.81%
14,040
54.00
14.79%
2,446
14.00
2.58%
1,572
9.00
1.66%
17,821
102.00
18.78%
52,779
55.62%
17,664
65.00
17.81%
14,810
54.50
14.93%
2,557
14.00
2.58%
1,552
8.50
1.56%
18,261
100.00
18.41%
54,844
55.29%
5,468
16.88%
4,723
54.727
14.58%
3,178
36.82
9.81%
1,126
3.48%
1,442
4.45%
225
0.69%
951
2.94%
17,113
52.8%
7,209
14.05%
4,827
47.544
9.40%
4,121
40.59
8.03%
1,242
2.42%
1,898
3.70%
253
0.49%
1,027
2.00%
20,577
40.1%
4,083
12.60%
2,993
49.070
9.24%
2,641
43.30
8.15%
797
2.46%
1,217
3.76%
262
0.81%
1,281
3.95%
13,274
41.0%
4,056
9.52%
5,856
74.317
13.75%
2,880
36.55
6.76%
1,670
3.92%
1,831
4.30%
281
0.66%
1,521
3.57%
18,095
42.5%
3,988
6.63%
8,161
71.363
13.57%
3,386
29.61
5.63%
2,410
4.01%
2,691
4.47%
298
0.50%
1,967
3.27%
22,901
38.1%
4,774
29.87%
8,360
70.526
52.31%
3,427
28.91
21.44%
1,373
8.59%
2,921
18.28%
0
0.00%
2,006
12.55%
22,861
143.1%
5,047
29.05%
8,470
64.338
48.75%
3,532
26.83
20.33%
1,628
9.37%
3,132
18.03%
339
1.95%
2,117
12.18%
24,265
139.7%
4,596
29.0%
7,670
65.00
48.40%
3,422
29.00
21.59%
1,268
8.0%
2,853
18.0%
238
1.5%
1,902
12.0%
21,949
138.5%
5,023
29.0%
8,770
68.00
50.63%
3,676
28.50
21.22%
1,732
10.0%
3,204
18.5%
329
1.9%
2,148
12.4%
24,882
143.7%
5,023
7.55%
8,770
70.37
13.18%
3,676
29.49
5.53%
1,732
2.6%
3,204
4.8%
329
0.5%
2,148
3.2%
24,882
37.4%
5,303
30.0%
8,636
65.00
48.86%
3,986
30.00
22.55%
1,768
10.0%
3,252
18.4%
177
1.0%
2,174
12.3%
25,296
143.1%
5,609
30.0%
9,107
65.00
48.71%
4,344
31.00
23.23%
1,870
10.0%
3,412
18.3%
262
1.4%
2,300
12.3%
26,902
143.9%
5,120
29.0%
8,507
65.00
48.18%
4,057
31.00
22.98%
1,942
11.0%
3,002
17.0%
247
1.4%
2,189
12.4%
25,065
142.0%
5,805
31.0%
9,122
65.00
48.71%
4,070
29.00
21.73%
2,247
12.0%
3,427
18.3%
375
2.0%
2,341
12.5%
27,386
146.2%
5,805
8.0%
9,122
67.06
12.54%
4,070
29.92
5.59%
2,247
3.1%
3,427
4.7%
375
0.5%
2,341
3.2%
27,386
37.6%
6,349
8.0%
9,610
65.00
12.11%
4,288
29.00
5.40%
2,381
3.0%
3,492
4.4%
397
0.5%
2,698
3.4%
29,214
36.8%
7,181
8.2%
10,337
64.00
11.80%
4,684
29.00
5.35%
2,627
3.0%
3,678
4.2%
438
0.5%
2,890
3.3%
31,835
36.4%
8,541
9.0%
11,007
63.00
11.60%
4,892
28.00
5.16%
3,796
4.0%
3,796
4.0%
569
0.6%
3,227
3.4%
35,828
37.8%
8,927
9.0%
11,322
62.00
11.41%
5,113
28.00
5.16%
3,968
4.0%
3,472
3.5%
595
0.6%
3,273
3.3%
36,670
37.0%
UOIG 22
2013 E
2014 E
2015 E
2016 E
2017 E
University of Oregon Investment Group
October 12, 2012
Implied Price
Undervalued/(Overvalued)
Adjusted Beta
Terminal Growth Rate
Terminal Growth
129
2.0%
2.5%
3.0%
3.5%
4.0%
1.27
130.56
143.43
158.71
177.18
199.94
1.37
119.03
130.17
143.26
158.86
177.79
1.47
108.80
118.52
129.83
143.16
159.10
1.57
99.66
108.20
118.05
129.54
143.13
1.67
91.45
99.00
107.64
117.63
129.32
Appendix 5 – Sources
Caterpillar SEC Filings
Seeking Alpha- Earnings transcripts
IBIS World
Caterpillar Investor Relations Page
Wall Street Journal
Bloomberg
JP Morgan North America Equity Research
Baird Equity Research
Factset
Yahoo! Finance
Reuters
Caterpillar MineExpo Conference
Caterpillar / B of A Conference
Forbes
“Relative Valuation” –Aswath Damodaran
UOIG 23