Caterpillar ($CAT) the heavy machinery manufacturer has been hit hard on concerns about a global economic slowdown. Some analysts are however still bullish on the company. The stock is trading close to a 52-week low ($CAT has dropped nearly 50% in the last 12 months) . How does the current share price look from an intrinsic value perspective?

Valuecruncher valuation model of $CAT with interactive assumptions

Valuecruncher produces a valuation of US$42.88 for $CAT. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 12.25% above the current share price of US$38.20.

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.

Play with our assumptions – what does your analysis say?

Disclosure: None