On Nov 14, 2014, we issued an updated research report on Caterpillar Inc. (CAT), the mining and equipment behemoth.
Caterpillar reported a 15% increase in its third-quarter 2014 earnings to $1.72 per share. The improvement was primarily attributed to its cost cutting efforts and continued deployment of operational improvement that helped mitigate the effect of lower mining-related sales on its profits.
Caterpillar revised its 2014 revenue guidance which now stands at $55 billion, the midpoint of the previous range of $54 to $56 billion. Nevertheless, the company has raised its earnings outlook for the year, reflecting its disciplined cost control and operational execution. Excluding restructuring costs, earnings per share are now expected to be $6.50, up from the prior forecast of $6.20.
Caterpillar’s backlog at the end of the third quarter was $19.7 billion, up from $19.3 billion in the second quarter, which bodes well for fourth-quarter performance. Caterpillar repurchased shares worth $2.5 billion in the quarter under its $10 billion stock repurchase authorization, previously approved by its board of directors in the first quarter of 2014. With a manageable debt-to-capital ratio at Machinery, Energy & Transportation of 34.7%, within its targeted range of 30% to 45%, the company can further repurchase shares which will be accretive to earnings and provide support to the stock.
The Architecture Billings Index, which is considered a leading indicator of U.S. non-residential construction, has remained above 50 in the recent months, signaling robust conditions ahead for the construction industry.
Caterpillar projects 2015 sales to be flat to slightly up from 2014 levels. Management expects lower locomotive sales to be a 200 basis point drag on Energy & Transportation revenue, as lower sales in the US will be partially offset by higher international locomotive sales and overall parts and service demand. Given that oil and gas represents about 30% of E&T segment revenue, if crude oil falls below the $70 range, it will affect the segments results.
Moreover, sales in Resource Industries will continue to be affected as mining companies continue to reduce their capital expenditures in 2014. Management expects restructuring costs of around $450 million in 2014 compared with $200 million in 2013. The guidance has been increased from the previous projection of $400 million due to increased restructuring programs in mining.
Caterpillar currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks worth considering in this sector include Alamo Group, Inc. (ALG), Briggs & Stratton Corporation (BGG) and Blount International Inc. (BLT). All of these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment