Caterpillar Will Take 'Axe' To 2016 Guidance, Axiom's Gordon Johnson Warns

Caterpillar Inc. (NYSE: CAT) had announced its 1Q16 revenue and EPS guidance below the Street expectations. Axiom's Gordon Johnson maintained a Sell rating for Caterpillar, saying that the company’s full-year guidance is at risk of being lowered.

Cut To Guidance Imminent

The banking sector’s recovery is likely to be backend loaded in the year. Despite lowering its 1Q16 guidance, Caterpillar reiterated its 2016 guidance of revenues of $40bn-$44bn and EPS of $3.50. While 1Q is a seasonally weak quarter for the company, it seems to be “putting too much faith in a backend rebound” for its revenue to meet the 2016 guidance, analyst Gordon Johnson commented.

Even if Caterpillar is able to achieve its long-run average q/q change in revenues in 2016, the midpoint of its guided 1Q16 revenues [$9.3bn] translates to full-year revenue of around ~$40.2bn, which is at the low-end of the reiterated guidance, Johnson said.

He added, “Yet, w/ what we see as a “new normal” in CAT’s industries, we believe seq. changes in CAT’s revs 2Q-4Q16 are likely to arrive below l-run avgs., implying a cut to its reiterated guidance may be imminent.”

Other Changes

The analyst raised the price target for the company from $28 to $33. The revenue and EPS estimates for 2016 have been reduced from $45.2bn to $39.2bn and from $2.79 to $2.16, respectively. The revenue estimate for 2017 has been reduced from $42.0bn to $37.6bn, while the EPS estimate for 2017 has been raised from $1.74 to $2.02.