Cat Shares Still Look Undervalued

We may slightly trim our $111 fair value estimate after reviewing  Caterpillar's (CAT)  third-quarter results. Sales in the firm's core machinery and power systems businesses climbed 5% from a year ago, with volume increasing just 4% compared with double digits over the past several quarters.

We're not surprised by the slower volume growth, given more-difficult comparisons and challenging economic activity in nearly all major regions outside North America. Beyond North America, only geographies that are less meaningful to overall results--such as Australia, other non-China portions of the Asia Pacific region, and the Middle East, Africa, and Commonwealth of Independent States--enjoyed positive top-line gains during the quarter. Latin American sales were flat, while Europe and China continued to suffer year-over-year declines.