Caterpillar Upgraded to Strong Buy on 2Q Expectations - Analyst Blog


On Jul 8, Zacks Investment Research upgraded Caterpillar Inc. ( CAT ) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Caterpillar shares touched a 52-week high of $111.16 on Jul 3, leading the Dow Jones Industrial Average, fueled by strong U.S. employment data.

Staying committed to its goal of delivering incremental returns to shareholders, Caterpillar's board of directors approved a 17% increase in its quarterly dividend in June, the highest percentage increase since 2010. The hike also reflects its balance sheet strength.

Caterpillar will now pay 70 cents per share to its shareholders every quarter, 10 cents more than the prior dividend of 60 cents per share. Caterpillar follows the likes of its competitors Deere & Company ( DE ) and Joy Global Inc. ( JOY ) both of which had announced dividend hikes in May this year.

Caterpillar delivered an impressive first quarter with earnings increasing 22% to $1.61 per share despite revenues remaining flat year over year at $13.2 billion. The company's incessant efforts to cut down costs, continued deployment of lean manufacturing initiatives and improvement in the Construction segment 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 and a strong backlog.

Caterpillar also reported a backlog of $19.3 billion at the end of the first quarter, up 7% year over year, driven by improvement in Energy & Transportation, mainly locomotives. This marks a reversal from the decline in backlog reported earlier.

Second quarter machinery results are expected to reflect the improving macroeconomic environment. Both North American truck and North American energy markets are showing signs of improvement while a gradual recovery in the global construction market is also expected to aid improvement of results.

Furthermore, Caterpillar has initiated extensive cost-saving programs across its global businesses. The company will continue to benefit from additional restructuring actions in 2014 to optimize its cost structure and improve its operational efficiency.

The Zacks Consensus Estimate for earnings per share for 2014 is currently pegged at $6.14 reflecting year-over-year growth of 6.85%. The expected long-term earnings growth rate for the stock is 10.1%.

Other Stocks to Consider

Another stock worth considering in the sector includes Komatsu Ltd. ( KMTUY ) with the same rank as Caterpillar.

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

CATERPILLAR INC (CAT): Free Stock Analysis Report

JOY GLOBAL INC (JOY): Free Stock Analysis Report

DEERE & CO (DE): Free Stock Analysis Report


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Zacks Investment Research

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.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CAT , JOY , DE , KMTUY

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