Caterpillar's (CAT) strong earnings power remains intact, with potential to grow earnings per share amid the company's conservative guidance and macro uncertainty, BofA Securities said in a Friday note.
The company reported Q3 adjusted profit of $7.20 per share, up from $4.95 a year earlier, as sales and revenue rose to $20.68 billion from $17.64 billion. Caterpillar shares fell after the results and BofA attributed this to a narrow earnings beat.
BofA also noted that Caterpillar did not raise its outlook, even with a record $78 billion backlog, limiting EPS revisions.
Caterpillar's backlog and EPS outlook entail minimal capital requirements, yet the company trades at a free cash flow yield of 5%, the brokerage said. The company still has the potential to generate 15% of its market cap in free cash flow in the coming years, BofA added.
BofA has a buy rating on Caterpillar, with a lower price target of $746 from $850 previously.
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