Caterpillar Inc.CATNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $413.92 per share(market-calibrated)

-45.0%

Upside to Fair Value

Current

$752.32

Pure Model

$393.60

Fair Value

$413.92

Bull Case

$491.09

Bear Case

$300.38

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

8.03%

Calibrated Growth

3.69%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $393.60.

What's Driving This Ratingfor CAT

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.80% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$308M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 23.04% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 9.05% in Year 1 to 2.25% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $285.61/share (12.6x terminal FCF) while exit multiple gives $501.59/share (28.4x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $752.32, the market implies 8.03% perpetual growth — 578bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.44% indicates efficient cash generation. FCF reaches $17.1B by Year 10 (16.71% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.55

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)11.49%

Cost of Debt

Pre-tax Cost of Debt1.38%

Tax Rate23.94%

After-tax Cost of Debt1.05%

Equity Weight (E/V)89.01%

Debt Weight (D/V)10.99%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (89.01% × 11.49%) + (10.99% × 1.05%)

= 10.34%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$73.7B	$87.3B	$91.7B	$95.9B	$102.5B
EBIT	$17.0B	$20.1B	$21.1B	$22.1B	$23.6B
Tax	$4.1B	$4.8B	$5.1B	$5.3B	$5.7B
NOPAT	$12.9B	$15.3B	$16.1B	$16.8B	$18.0B
+ Depreciation	$2.4B	$2.9B	$3.0B	$3.2B	$3.4B
- Capex	$2.8B	$3.3B	$3.4B	$3.5B	$3.6B
- Δ NWC	$1.7B	$1.9B	$561M	$587M	$627M
Free Cash Flow	$10.8B	$13.0B	$15.2B	$15.9B	$17.1B
Discount Factor	0.906	0.744	0.611	0.502	0.374
Present Value	$9.8B	$9.7B	$9.3B	$8.0B	$6.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$17.1B

Terminal Growth Rate2.25%

WACC10.34%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$216.4B

PV of Terminal Value$80.8B

Exit Multiple Method

Year 10 EBITDA$27.0B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$486.0B

PV of Terminal Value$181.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$85.7B

PV of Terminal Value$80.8B

Enterprise Value$166.6B

(-) Net Debt$33.4B

Equity Value$133.2B

Shares Outstanding467M

Price per Share$285.61

Exit Multiple Method

PV of Projected FCFs$85.7B

PV of Terminal Value$181.6B

Enterprise Value$267.3B

(-) Net Debt$33.4B

Equity Value$234.0B

Shares Outstanding467M

Price per Share$501.59

Pure Model Fair Value

$393.60

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
8.34%	$481.80	$491.34	$502.44	$515.53	$531.18
9.34%	$428.28	$434.96	$442.59	$451.37	$461.59
10.34%	$383.32	$388.16	$393.60	$399.76	$406.78
11.34%	$344.81	$348.42	$352.42	$356.88	$361.90
12.34%	$311.37	$314.11	$317.12	$320.45	$324.14

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$300.38

-60.1% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.94

Base Case

$393.60

-47.7% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.55

Bull Case

$491.09

-34.7% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.32

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth9.05%

Year 3 Revenue Growth8.70%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin23.04%

Tax Rate23.94%

Historical Capex / Rev3.80%

Terminal Capex / Rev3.50%

NWC / Revenue27.81%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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