Farm and construction equipment companies, such as Caterpillar (CAT) and Deere & Company (DE), have trounced the broader markets over the past two decades. For instance, shares of Caterpillar have surged over 1,200% since February 2004, after adjusting for dividends. Comparatively, Deere stock has returned 1,740% to investors in this period. 

But, as past returns don’t matter much to current and future investors, let’s see which large-cap giant looks like a better stock to buy right now. 

The Bull Case for Caterpillar Stock

Valued at $164.7 billion by market cap, Caterpillar manufactures and sells construction and mining equipment, as well as off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. 

In Q4 of 2023, Caterpillar reported revenue of $17.07 billion, an increase of 13% year over year. Comparatively, its adjusted earnings per share stood at $5.23, higher than estimates of $4.75 per share. The company ended Q4 with an operating margin of 18.4%, much higher than 10.1% in the year-ago period. 

Its widening earnings base allowed Caterpillar to report an operating cash flow of $12.9 billion in 2023, enabling it to return $7.5 billion to shareholders via dividends and buybacks in the last 12 months. 

Caterpillar ended Q4 with an order backlog of $27.5 billion, while analysts expect its sales to rise by 1% to $67.6 billion this year. According to Caterpillar, it is experiencing healthy demand in most end markets, despite an uncertain macro backdrop. 

While top-line growth is expected to remain marginal in 2024, Caterpillar raised profitability guidance by 100 basis points for the year. It expects to generate free cash flow between $5 billion and $10 billion in 2024, up from its previous guidance range of $4 billion and $8 billion. 

Priced at 15.4 times forward earnings, Caterpillar is not too expensive, given earnings are forecast to grow by 12.6% annually in the next five years. The company also pays shareholders an annual dividend of $5.20 per share, indicating a yield of 1.6%. These payouts have risen at an annual rate of 10% in the last 20 years. 

The Bull Case for Deere Stock

Valued at $108.1 billion by market cap, Deere manufactures and distributes equipment used in sectors such as agriculture, construction, forestry, and turf care. Founded in 1837, Deere is among the oldest companies globally. It has survived multiple economic downturns in the last two centuries, showcasing the resiliency of its cash flows. 

In fiscal Q4 of 2023 (ended in October), Deere reported adjusted earnings of $8.26 per share, well ahead of estimates of $7.49 per share. However, the stock still declined following its Q3 numbers, as the company forecast net income between $7.75 billion and $8.25 billion in fiscal 2024 - down from net income of $10.2 billion in 2023. 

Similar to other companies in the construction sector, Deere is cyclical, and its management expects sales volume to move from a recent cyclical peak to mid-cycle levels in the next 12 months. 

Deere pays shareholders a quarterly dividend of $1.47 per share, indicating a yield of 1.5%. These payouts have risen by 12.5% annually since 2004. 

What Do Analysts Expect for Caterpillar and Deere?

Out of the 20 analysts covering Caterpillar stock, seven recommend “strong buy,” one recommends “moderate buy,” 10 recommend “hold,” and two recommend “strong sell.” The average target price for Caterpillar is $271.42, about 16% below its current trading price. 

Out of the 20 analysts covering Deere stock, 11 recommend “strong buy,” one recommends “moderate buy,” and eight recommend “hold." The average target price for Deere is $428.33, 13.8% above its current trading price.