Caterpillar Inc. (CAT): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We have upgraded our recommendation on Caterpillar from Neutral to Outperform with a target price of $128 as its estimates are undergoing positive revisions following its strong first- quarter results. Caterpillar's first-quarter earnings per share increased 22% to $1.61 as the company's incessant efforts to cut down costs helped mitigate the effect of lower mining-related sales on its profits. Caterpillar expects revenues in 2014 to be flat with 2013 or move up or down in a 5% range. Caterpillar will benefit from recovery in the U.S. construction sector, macroeconomic stabilization in Europe, growth in the Chinese Excavator market, share repurchases and a strong backlog.

Overview:

Caterpillar Inc. (CAT) is a leading manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Caterpillar is also a leading exporter in the U.S. with more than half of its sales being generated outside the United States. Through its global network of independent dealers, Caterpillar builds long-term relationships with customers around the world. Caterpillar operates through two divisions Machinery & Power systems and Financial Products.

Machinery, Energy & Transportation (Approximately 94% of total revenue in the first quarter of 2014) The segment represents the aggregate total of Construction Industries, Resource Industries, Power Systems, and all Other segments and related corporate items and eliminations.

Construction Industries This segment is responsible for small and core construction machines. Its product portfolio includes backhoe loaders, small wheel loaders, small tracktype tractors, skid steer loaders, multi-terrain loaders, mini excavators, compact wheel loaders, select work tools, small, medium and large track excavators, wheel excavators, medium wheel loaders, medium track-type tractors, track-type loaders, motor graders and pipe layers. In addition, the Construction Industries segment is responsible for Power Systems and components in Japan and an integrated manufacturing cost center that supports the Machinery and Power Systems businesses.

Resource Industries This segment takes care of business strategies, product design, product management and development, manufacturing, marketing and sales and product support for large track-type tractors, large mining trucks, hard rock vehicles, longwall miners, electric rope shovels, draglines, hydraulic shovels, drills, highwall miners, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, select work tools, machinery components and electronics and control system.

Energy & Transportation This segment, formerly known as Power Systems, supports customers using reciprocating engines, turbines, diesel-electric locomotives and related parts across industries catering to power generation, industrial, oil and gas and transportation applications, including marine and rail-related businesses.

All Other Segments These segments primarily include activities such as the re-manufacturing of CAT engines and components and re-manufacturing services for other companies as well as product management, development, manufacturing, marketing and product support of undercarriage, specialty products, hardened bar stock components and ground engaging tools, paving products, forestry products, industrial and waste products, and tunnel boring equipment.

Financial Products Segment (Approximately 6% of total revenue in the first quarter of 2014) Provides financing to customers and dealers for the purchase and lease of Caterpillar and other equipment, as well as offers some financing for Caterpillar sales to dealers. Financing plans include operating and finance leases, installment sale contracts, working capital loans and wholesale financing plans. The division also provides various forms of insurance to customers and dealers to facilitate the purchase and lease of equipment.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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