Caterpillar Hits 52-Week High - Analyst Blog

Caterpillar Inc.'s CAT shares attained a 52-week high of $99.34 during intraday trading on Mar 25, finally closing lower at $98.59.
 
The company has delivered a year-to-date return of about 9%, outperforming the S&P return of 1.41%. It has a market cap of $61.8 billion. Average volume of shares traded over the last 3 months was approximately 6,177K. Caterpillar has long-term estimated earnings per share growth rate of 8.5%.

What's Driving Caterpillar?

Caterpillar's shares surged 1.8% on Mar 25 on upbeat U.S data and hopes that China will implement a stimulus to revive its economy. The U.S. consumer confidence notched up 4 points to 82.3, the highest level since Jan 2008. The latest positive reads on the U.S. Economy signal that the softness earlier this year was due to inclement weather and not economic weakness, thereby improving the market sentiment. Furthermore, expectations of the Chinese stimulus have helped support Caterpillar's share prices as it will drive demand for Caterpillar's products.

Despite facing a Senate probe for possible overseas tax evasions, Caterpillar witnessed the climb. It is alleged that the company evaded more than $2 billion of U.S. taxes by shifting profits abroad. Caterpillar adds to the list of bigwigs like Apple Inc. AAPL and Microsoft Corporation MSFT among others that have been investigated by the committee.

Caterpillar released a statement on Mar 24 that it will willingly participate in a hearing in Apr scheduled by the U.S. Senate's Permanent Subcommittee on Investigations and is preparing its defense.

After a dismal run in 2013, Caterpillar's shares prices held up steadily above $90 since the fourth-quarter earnings release on Jan 27. The fourth quarter marked the first year-over-year earnings improvement in 2013 and broke the jinx of four consecutive negative earnings surprises. Even though revenues declined 10% in the quarter to $14.4 billion, Caterpillar delivered a 48% rise in its earnings to $1.54 per share, helped by its focus on cost reduction.

Caterpillar expects revenues in 2014 to be flat with 2013 levels, up or down 5%. Excluding restructuring costs, earnings per share are expected to be $5.85. Construction Industries and Power Systems are expected to deliver sales growth on the back of an economic recovery. However, sales at the Resource Industries segment will continue to face challenges, as mining companies will keep lowering their costs with reduced capital expenditures allocated for 2014.

In spite of the issues plaguing the company at the moment like, the Russia-Ukraine conflict, loss of a contract and a pending probe, Caterpillar will reap profits from its cost reduction activities and benefit from a recovery in the construction sector.

Other Stocks to Consider

Caterpillar currently retains a Zacks Rank #3 (Hold). A better-ranked stock in the same sector includes The Manitowoc Company, Inc. MTW with a Zacks Rank #2 (Buy).