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By: Brendan Chong David Ferguson Tanner Champagne Caterpillar Inc. (NYSE:CAT) Slide 2 Overview of Presentation Slide 1: Key Information Slide 2: Investment Thesis Slide 3: Overview of Industrials Sector Slide 4: Overview of Company Slide 5: Industry Ratio Comparison Slide 6: Catalysts for Growth Slide 7: Potential Risks Slide 8: Dividends Slide 9: Holding Period & Reasons to Re-evaluate Position Slide 10: How CAT Fits with Current HT Portfolio Slide 3 Key Information Market Cap.: 53.39BAvg. Vol.: 5.50M52 Week Range: $78.19-$111.46 P/E: 14.18EPS: 6.24Shares: 603.7M Beta: 1.65Inst. Own: 68% Slide 4 Investment Thesis We are bullish on Caterpillar because we feel that they are well positioned for both long-term and short-term growth. We also feel that Caterpillar has better potential than its industry peers to produce a significant return (5%+) over a holding period of one month or more. Heres why: 1. We are going into summer (aka construction season) 2. Their beta is somewhat high (1.65) 3. Promising first quarter earnings report 4. The number of construction projects seems to be on an upward trend, and the mining industry seems to be beginning to recover. Slide 5 Overview of Industrials Sector The sustained performance of the U.S. commercial real estate industry is expected to continue in 2015, fueled by improving fundamentals and robust investor appetite, in both domestic and foreign arenas, according to Emerging Trends in Real Estate 2015, co-published by PwC US and the Urban Land Institute (ULI) -www.bdcnetwork.com In a big Monday call, R.W. Baird upgraded both Caterpillar (CAT) and Joy Global (JOY) to "outperform," saying that "the worst is behind" commodities, that the mining business is stabilizing, and that "history shows that being early pays off.CATJOY -www.cnbc.com Slide 6 Overview of Company They manufacture construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives The company can be divided into three product segments: 1. Resource Industries, 2. Construction Industries, and 3. Power Systems They also have a Financial Products business segment that provides financial services. The Power Systems segment of the company is responsible for working with customers who are using reciprocating engines, turbines and related parts in industries that serve electric power, industrial, petroleum, and marine applications, in addition to rail- related businesses. Slide 7 Industry Ratio Comparison Industrial Sector AverageCaterpillar Market Cap93962.6B53.6B P/E20.4314.21 ROE %16.2120.85 Div. Yield %2.153.2 LT D/E146.44227.62 Price to Book9.493.16 Profit Margin %7.98.75 Slide 8 Catalysts for Growth Upswing in North American commercial and housing construction for Summer 2015 Upswing in commodity prices for Summer 2015 Weaker Euro drives exports, along with lower oil prices and ECB interest rates will encourage European capital spending R.W. Bard upgraded CAT from neutral to outperform Promising Q1 2015 results Favorable cost controls; i.e. - reigned in capex 24% YoY thus increasing FCF conversion Stock buybacks expected to continue at a $400 million quarterly rate; higher expected Q3 QoQ dividend payout Slide 9 Potential Risks Highly sensitive to global commodity prices Asia regions(China and Japan) declining economic growth Slide 10 Dividends CAT pays Quarterly dividends Last dividend yield was 3.2% Dividend payout almost double industry average CAT shows trend of increasing dividend payouts at 11% per year Promising outlook for next dividend payout in August Slide 11 Holding Period & Reasons to Re-evaluate Position We feel that we should hold CAT through the summer considering that none of the reasons to re-evaluate surface over the summer, and then re-evaluate the position regardless of the reasons below in the fall. Reasons to Re-evaluate: -Share price goes below $78 -Share price goes above $95 -There is a drastic decrease in earnings (-15% from previous quarter) Slide 12 How CAT Fits with Current HT Portfolio