TLDR
- ABP sold its €387 million stake in Caterpillar over Israel-related human rights concerns.
- Caterpillar shares surge 0.1% in pre-market trading.
- UN previously warned Caterpillar about potential violations linked to bulldozer sales.
- The divestment follows ABP’s new sustainability policy on responsible investing.
- Despite the news, Caterpillar’s YTD return is 33.14%, far above the S&P 500.
Caterpillar Inc. ($CAT) closed at $480.82 gaining 1.17% during regular trading.
However, shares surged slightly 0.01% pre-market to $480.88 after reports that Dutch pension fund ABP sold its entire stake in the heavy-equipment manufacturer.
According to Dutch broadcaster NOS, ABP divested its position worth €387 million, citing concerns over Caterpillar’s role in supplying bulldozers used in Israeli demolition operations in Palestinian territories.
Human Rights Concerns
The United Nations previously warned Caterpillar that continuing deliveries of bulldozers to Israel could implicate the company in human rights violations. These bulldozers are widely used in demolition activities, which have drawn global criticism.
ABP’s decision aligns with its updated sustainability policy, introduced last year, which places stronger emphasis on socially responsible investing. The move demonstrates growing institutional investor scrutiny over human rights and geopolitical issues linked to corporate supply chains.
Strong Financial Performance
Despite the controversy, Caterpillar’s financial and market performance remains robust. The company has delivered a 33.14% YTD return, far outperforming the S&P 500’s 13.72%. Over the past three years, the stock surged 207.23%, and in five years, it gained an impressive 252.96%, compared with the benchmark’s 98.88%.
Caterpillar’s market capitalization stands at $218.20 billion, with an enterprise value of $253.50 billion. Its valuation metrics include a trailing P/E of 23.71 and a forward P/E of 22.08, supported by a price-to-sales ratio of 3.54.
Profitability and Balance Sheet
The company reported revenue of $63.14 billion and net income of $9.44 billion over the past 12 months, translating to a 14.95% profit margin. Return on equity is exceptionally high at 52.71%, highlighting efficiency in shareholder value generation.
Diluted EPS stands at $20.14, with a PEG ratio of 2.02, suggesting moderate growth expectations relative to valuation. On the balance sheet, Caterpillar carries total cash of $4.43 billion, with a debt-to-equity ratio of 218.34%, indicating a highly leveraged structure.
Outlook for Investors
Caterpillar’s divestment-linked controversy poses reputational risks, but the company’s strong cash flow and global demand for heavy equipment support its long-term fundamentals. Levered free cash flow was reported at $4.53 billion, underlining solid liquidity.
While ABP’s exit may influence ESG-focused investors, Caterpillar’s strong operational track record and growth trajectory could continue to attract shareholders prioritizing returns.
