Caterpillar Inc. (CAT) in Peoria, Ill., manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. In comparison, The Manitowoc Company, Inc. (MTW), which is based in Manitowoc, Wisc., provides engineered lifting solutions in the Americas, Europe, Africa, the Middle East, and the Asia Pacific.
The heavy construction industry is expected to grow significantly in the near term in-part due to the U.S. Senate’s passage yesterday of a roughly $1 trillion bill to revamp the nation’s infrastructure. This once-in-a-generation investment plan (which now awaits passage in the U.S. House of Representatives) should increase the demand for construction machinery substantially over the long term, allowing heavy machinery stocks, CAT, and MTW to benefit significantly.
MTW has gained 73.2% over the past six months, while CAT has returned 8.3% over the period. Also, MTW’s 94.7% gains year-to-date compare with CAT’s 17.6% returns. But MTW’s 152.1% gains over the past year make it the clear winner, with CAT returning 50.7% over the same period.
But which stock is a better buy now? Let’s find out.
Latest Developments
On July 20, MTW agreed to acquire the crane business of H&E Equipment Services, Inc. (HEES), one of the largest rental equipment companies in the U.S. This should allow MTW to expand its ability to provide rentals, new sales, used sales, aftermarket parts, and service to various end-market customers while positioning the company for future growth opportunities.
Nouveau Monde Graphite Inc. (NMGRF) and Caterpillar Inc. (CAT) announced an agreement in June under which CAT will develop Cat® “zero-emission machines” for the Matawinie graphite mine. The company plans to become the exclusive supplier of an all-electric mining fleet for deployment at Nouveau Monde’s Matawinie mine by 2028. Given the global, zero-emissions imperative, this agreement is expected to help CAT garner significant revenues over an extended period.
Recent Financial Results
MTW’s net sales increased 41.2% year-over-year to $463.60 million in its fiscal second quarter, ended June 30. Its gross profit grew 86.8% from its year-ago value to $90.40 million, while its net income improved 240.9% year-over-year to $17.90 million over the period. The company’s EPS increased 235.1% year-over-year to $0.50.
CAT’s total revenues have increased 28.9% year-over-year to $12.89 billion in its fiscal second quarter, ended June 30. Its operating profit stood at $1.79 billion, up 128.2% from the same period last year. And its profit increased 208.5% from the year-ago value to $1.41 billion. The company’s EPS increased 204.8% year-over-year to $2.56.
Past and Expected Financial Performance
CAT’s net income and EPS have grown at CAGRs of 11.9% and 15.5%, respectively, over the past three years. Analysts expect CAT’s revenue to increase 21.3% in the current quarter, 17.9% in the current year, and 11.5% next year. The company’s EPS is expected to grow 66.4% in the current quarter, 49.4% in the current year, and 22.8% in the next year. Furthermore, its EPS is expected to grow at a 19.1% rate per annum over the next five years.
In comparison, MTW’s net income and EPS declined at CAGRs of 28.7% and 28.1%, respectively, over the past three years Analysts expect the company’s revenue to increase 10.7% in the current quarter, 8.9% in the current year, and 9.1% next year. The company’s EPS is expected to grow 40% in the current quarter, 217.1% in the current year, and 190.2% next year. However, MTW’s EPS is expected to decline at a 17.6% rate per annum over the next five years.
Profitability
CAT is more profitable, with a 26.20% and 18.94% respective gross profit and EBITDA margins, compared to MTW’s 18.82% and 7.46% margins.
Furthermore, CAT’s ROE, ROA, and ROTC of 28.68%, 5.06%, and 7.49%, respectively, compare with MTW’s 2.55%, 3.06%, and 5.05%.
Thus, CAT is more profitable.
Valuation
In terms of forward EV/Sales, CAT is currently trading at 2.81x, which is 79.7% higher than MTW, which is currently trading at 0.57x. Also, CAT’s 16.23 forward EV/EBITDA ratio is 44.9% higher than MTW’s 8.94.
Thus, MTW is an affordable stock here.
POWR Ratings
CAT has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. MTW, in contrast, has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Both stocks have a C grade for Momentum. This is justified because they are trading above their respective 50-day moving averages.
Among the 85 stocks in the A-rated Industrial - Machinery industry, CAT is ranked #29, while MTW is ranked #57.
Beyond what we’ve stated above, we have also rated the stocks for Sentiment, Stability, Quality, Value, and Growth. Click here to view CAT ratings. Also, get all MTW ratings here.
The Winner
As President Biden’s Build-Back-Better initiative takes shape with the Senate's approval of the infrastructure bill, the heavy-construction industry is expected to garner significant revenues over an extended period. This should bode well for both stocks. However, we think CAT’s higher profit margins along with prominent growth prospects make it the better choice here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Machinery industry here.
CAT shares rose $0.18 (+0.08%) in after-hours trading Wednesday. Year-to-date, CAT has gained 23.64%, versus a 19.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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