Is Caterpillar Inc. (CAT) Likely to Beat Earnings Estimates?

We expect Caterpillar Inc. CAT, the mining and equipment behemoth, to beat expectations when it reports second-quarter 2014 results before the market opens on Jul 24.

 

Why a Likely Positive Surprise?

 

Our proven model shows that Caterpillar may beat earnings because it has the right combination of two key components.

 

Positive Zacks ESP: Caterpillar currently has an Earnings ESP of +2.00%. This is because the Most Accurate estimate stands at $1.53 per share, while the Zacks Consensus Estimate is pegged at $1.50.

 

Zacks Rank #2 (Buy): Note that stocks with a Zacks Rank #1, 2 and 3 have a higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

 

The combination of Caterpillar's Zacks Rank #2 (Buy) and Earnings ESP of +2.00% makes us confident of a positive earnings beat.

 

What is Driving Better-than-Expected Earnings? 

 

Caterpillar's estimates have undergone positive revisions following its first-quarter earnings results. Caterpillar's first-quarter earnings increased 22% to $1.61 per share as the company's incessant efforts to cut down costs helped mitigate the effect of lower mining-related sales on its profits.

 

Caterpillar reported a backlog of $19.3 billion at the end of the first quarter, up 7% year over year, driven by improvement in Energy & Transportation, mainly locomotives. This marks a reversal from the decline in backlog reported earlier.

 

Second quarter machinery results are expected to reflect the improving macroeconomic environment. Both North American truck and North American energy markets are showing signs of improvement while a gradual recovery in the global construction market is also expected to aid improvement of results.

 

Caterpillar has initiated extensive cost-saving programs across its global businesses and will continue to benefit from additional restructuring actions in 2014 to optimize its cost structure and improve its operational efficiency.  

 

Caterpillar has topped the Zacks Consensus Estimate in two of the trailing four quarters with an average positive surprise of 4.82%. In the last reported quarter, the company outpaced the Zacks Consensus Estimate by 28.80%.

 

Other Stocks to Consider

 

Caterpillar is not the only company which is looking up this earnings season. The following companies are also likely to beat earnings in the to-be-reported quarter: 

 

Martin Marietta Materials Inc. MLM with an Earnings ESP of +2.44% holds a Zacks Rank #2 (Buy).

 

Eaton Corporation plc ETN has an Earnings ESP of +2.38% and a Zacks Rank #2.

 

Kennametal Inc. KMT has an Earnings ESP of +1.12% and a Zacks Rank #3 (Hold).