) has recently been awarded a six-year fixed price contract by the
Defense Logistics Agency for providing commercial construction
equipment. The contract value, with economic price adjustment, is
set at $776 million. Caterpillar outbid 14 other bidders for the
The equipment will be used in certain U.S. states (North
Carolina, Illinois, Georgia, Minnesota, Arkansas, Iowa, South
Carolina, Indiana) besides England, France, Belgium, Japan, Italy
and Ireland. The Army, Navy, Air Force, Marine Corps and federal
civilian agencies will be using the equipment. The work is to be
performed at Cat's plant in Mossville, Illinois with completion
scheduled by May 23, 2017.
Caterpillar's order backlog has steadily increased throughout
the quarter and is at a new high, which holds promise for the year
ahead. Backlog stood at $30.7 billion at the end of the first
quarter, up from $29.8 billion at the end of fiscal 2011. Many
products have long lead times, with some slated for 2014. This
bodes well for Caterpillar's future performance.
The company is persistently adding production capacity for many
of its mining products. We believe that the top line at the company
will continue to grow on the back of increasing demand for
construction and mining equipment. Caterpillar plans to open new
facilities and expand existing operations, particularly in the
emerging markets, which will boost its long-term potential.
On the flip side, besides the European debt crisis, signs of a
slowdown in China have triggered concerns. China has slashed its
2012 growth target to an eight-year low of 7.5%. A slowing Chinese
economy will have a negative effect on the infrastructure and
construction spending with an immediate impact on Caterpillar's
sales in the near term.
We maintain our Neutral recommendation on Caterpillar due
to the recent loss of momentum in sales growth, margin headwinds,
negative impact of the European debt crisis and a slowing Chinese
economy. The quantitative Zacks #3 Rank (short term Hold rating)
for the company indicates no clear directional pressure on the
stock over the near term.
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of
construction and mining equipment, diesel and natural gas engines,
and industrial gas turbines. The company is one of the few leading
U.S. companies in an industry that competes globally from a
principally domestic manufacturing base.
Caterpillar operates two divisions: Machinery and Power Systems
(M&PS) and Financial Products. Caterpillar competes with the
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