Market Overview

Caterpillar Earnings Preview: High Expectations

Caterpillar (NYSE: CAT) is scheduled to report fourth-quarter 2011 results tomorrow, January 26, before the markets open. The heavy equipment maker reported strong third-quarter results driven by increased demand due continued economic growth. And the company's cash flow was at an all-time high. Investors will be hoping for more of the same this time around.

Analysts are looking for the company to report that its per-share earnings rose to $1.73 for the quarter and that revenue totaled $16.1 billion. That is up from $1.47 per share on $12.8 billion in the same period of last year. Note that the EPS estimate is up a penny from 60 days ago. And Caterpillar's per-share earnings have topped consensus estimates in five of the past six quarters.

For the full year, the consensus estimate calls for $6.81 per share earnings, an increase of 39.1% from the previous year. That EPS estimate has risen two cents over the past 60 days. And Caterpillar's revenues are expected to have increased 37.5% year over year to $58.6 billion.

The Company

This Peoria-based manufacturer of construction and mining equipment operates through three lines of businesses: Machinery, Engines and Financial Products. The Engines division produces diesel and natural gas engines and industrial turbines. The Financial Products division offers financing and insurance on its other products. The company was founded in 1925 and now is an S&P 500 component with a market cap of $68.7 billion.

During the three months that ended in December, the company completed acquisition of engine maker MWM, opened a manufacturing plant in Winston-Salem, invested $210 million in expansion in India, and appointed a new chief information officer.

Performance

Caterpillar has a long-term earnings per share growth forecast of 23.0%. Its PEG ratio is less than the industry average, and its operating margin is better than the industry average. It has a return on equity of 36.2% and dividend yield of 1.8%. Short interest is 2.4% of the float. Sixteen of 24 analysts who follow the stock rate it a Buy or Strong Buy; none recommend selling. Their mean price target on shares is 8.7% higher than the current share price.

The share price has jumped 16.5% in the past month to $106.29, and the 50-day moving average crossed above the 200-day moving average yesterday. The 52-week range is $67.54 and $166.55. The stock has outperformed competitors Deere & Co. (NYSE: DE) and CNH Global (NYSE: CNH) and the broader markets over the past year.

See also: Four Global Industrial ETFs to Consider Now.

ACTION ITEMS:

Bullish: Investors interested in exchange traded funds invested in Caterpillar might want to consider the following trades:

  • ProShares UltraPro Dow30 (NYSE: UDOW) is about 77% higher than the 52-week low.
  • Industrial Select Sector SPDR (NYSE: XLI) is more than 31% higher than the 52-week low.
  • Vanguard Industrials ETF (NYSE: VIS) is about 30% higher than the 52-week low.
  • SPDR Dow Jones Industrial Average (NYSE: DIA) is more than 27% higher than the 52-week low.
Bearish:

Traders may prefer to consider these alternative positions in the same sector:

  • Manitowoc (NYSE: MTW) is up more than 117% from the 52-week low.
  • Terex (NYSE: TEX) is up more than 107% from the 52-week low.
  • AGCO (NYSE: AGCO) is up more than 70% from the 52-week low.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: AGCOEarnings Long Ideas News Short Ideas Previews Trading Ideas ETFs

 

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