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Stock Analyst Update

Caterpillar's CEO Announces His Retirement

We reiterate our fair value estimate with Caterpillar executive Jim Umpleby taking over on Jan. 1.

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We reiterate  Caterpillar’s (CAT) $68 fair value estimate and wide moat rating following news of the impending retirement of CEO and chairman Doug Oberhelman. Caterpillar executive James Umpleby will replace Oberhelman as CEO on Jan. 1, 2017, while private equity group Blackstone’s Dave Calhoun will take over as non-executive chairman on April 1, 2017.

After assuming the CEO post in 2010, Oberhelman oversaw a few great years for Caterpillar as it reached its all-time revenue peak of $66 billion in 2012 and generated a similar peak in earnings per share. Since then, trends have been decidedly more challenging, as revenue has fallen by nearly one third over the past four years, and Oberhelman has been tasked with multiple lay-offs and reorganizations. He leaves the company with a mixed legacy. While company ROIC at 11% after a dramatic profit and revenue decline confirms that it is still creating economic value, investors will likely never forget the $9 billion Bucyrus acquisition that epitomized the top of the China-induced commodities super cycle and has failed to justify its acquisition price.

Umpleby comes from Caterpillar’s Energy & Transportation group, which is the company’s most diversified reporting segment. As such, Umpleby would have had extensive capital allocation experience in this segment, an important skill set considering Caterpillar’s many product lines and geographies. He has worked for the firm since 1980 with roles that encompassed engineering, manufacturing, sales, marketing, and customer service. We expect the company to have a relatively smooth management transition, although we would not be surprised if the new leader looks to reset near-term investor expectations relative to the challenging end-market conditions that Caterpillar currently faces. 

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Kwame Webb does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.