On Oct 26, 2013, Zacks Investment Research downgraded
) to a Zacks Rank #5 (Strong Sell).
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Why the Downgrade?
Caterpillar witnessed sharp downward estimate revisions after
reporting disappointing third-quarter 2012 results on Oct 23.
Reduced mining demand continued to plague the construction and
mining equipment behemoth; resulting in an 18% year-over-year
decline in revenues to $13.4 billion while earnings per share
slumped 43% to $1.45.
Caterpillar has delivered negative earnings surprises in all the
past four quarters. Caterpillar has trimmed its fiscal 2013
guidance for three quarters in a row. For fiscal 2013,
Caterpillar now projects sales of $55 billion, down from the
previous range of $56 to $58 billion due to lower sales
expectations for Resource Industries (down 40%) and Power Systems
and Construction Industries (each down 5%).
Caterpillar now expects to earn $5.50 per share in 2013, down
from the earlier projection of earnings of $6.50 per share due to
lower sales volume including an unfavorable mix of products and
lower price realization. The Zacks Consensus Estimate pegs 2013
earnings at $5.53 a share, reflecting a 35.91%
Caterpillar expects revenues in 2014 to be flat with 2013 or move
up or down in a 5% range. Construction Industries is expected to
log sales growth, Power Systems sales will be flat, while sales
in Resource Industries is expected to dip. The Zacks Consensus
Estimate for 2013 projects a year-over-year decline of 9.81%.
Estimate revision trend reflects overly bearish sentiment toward
Caterpillar's earnings for the ongoing as well as next year. For
2013, 11 of the 15 estimates were revised downward over the past
7 days, dragging down the Zacks Consensus Estimate by 11% to
$5.53 per share. For 2014, 14 of the 18 estimates were revised
downward over the same timeframe, lowering the Zacks Consensus
Estimate by 14% to $6.07 per share.
Other Stocks to Consider
Not all stocks in the industrial products sector are performing
as poorly as Caterpillar. We recommend
Lonking Holdings Ltd.
), all carrying Zacks Rank #2 (Buy).