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Caterpillar Inc. (CAT) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Caterpillar Inc. (CAT)

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Intrinsic Value (DCF)

Current$647.18
→
Intrinsic$414.01
-36%
$256.17$414.01$727.99
Market implies 26% growth for 5 years
Current price reflects execution expectations above 15% growth — not unreasonable for quality businesses.
At $647, the market prices in continued strong cash flow growth (26%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $256 → Bull $728. Current price implies expectations above the base case, closer to bull expectations.
Discount ↓Growth →11%13%15%17%
8%$531$582$638$697
10%$343$377$414$453
12%$244$269$296$325
14%$183$202$223$246

Bull Case

  • Bull case ($728) offers 12% upside at 19% growth, 8% discount

Bear Case

  • Bear case ($256) implies 60% downside at 12% growth, 12% discount
  • Price reflects 26% growth expectations vs 15% historical — high bar to clear
  • Trading 36% above base case — execution must exceed assumptions to justify
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5-Year Free Cash Flow Projection

Year 1$10.18B
Year 2$11.76B
Year 3$13.58B
Year 4$15.68B
Year 5$18.11B
Terminal$286.94B

📐 Model Inputs

Growth Rate15.5%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate9.5%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$8.82BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is CAT stock undervalued or overvalued?
🔴 OVERVALUED

CAT trades at $647.18 vs. our DCF-derived intrinsic value of $405.11, implying -35% downside. Using a 9.5% WACC and 15.5% FCF growth assumption, the current price requires growth rates above our estimates to be justified. Even our bull case ($632.10) suggests limited upside.

What is CAT's intrinsic value?

Using a 5-year DCF model: Base FCF of $8.82B, projected at 15.5% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 9.5% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $31.52B net debt and dividing by 0.49B shares: Bear $250.25 | Base $405.11 | Bull $632.10. Current price $647.18 implies -35% to base case.

How is CAT's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 15.5% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=9.5%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($229.78B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 26.1x.