Buy Caterpillar Stock Ahead of Q2 Earnings, Stay for the Dividend?
Caterpillar CAT is set to release its second quarter fiscal 2020 financial results before the opening bell on Friday, July 31. Wall Street will be watching CAT closely for signs of economic recovery, as fears of an uptick in coronavirus cases mount.
Quick Economic Overview
Gold prices hit another record Monday, with the precious metal now up 27% this year, while Silver prices have also surged. The climbs come as economic reopening plans are hampered by increasing Covid-19 cases, alongside tensions between the U.S. and China. Meanwhile, the U.S. dollar just recently touched two-year lows, as investors see interest rates remaining low and the road to recovery perhaps taking longer than initially projected.
This week will likely be the one of, if not the most important stretch of the second quarter earnings season, with reports due out from Amazon AMZN, Apple AAPL and two other FAANG firms, as well as Boeing BA, Visa V, Procter & Gamble PG, 3M MMM, Mcdonald's MCD, Pfizer PFE, and countless others.
Investors should also note that there have been early signs of an improving earnings outlook in the second half of 2020 (also read: The Technology Sector Shows its Earnings Power Amid Coronavirus).
What’s Up with CAT?
Caterpillar withdrew its 2020 outlook in March based on coronavirus uncertainty and it fell short of first quarter estimates. The Deerfield, Illinois-based firm also temporarily suspended operations at some facilities “due to supply chain issues, weak customer demand or government regulations.”
CAT said that as of mid-April, approximately 75% of its primary production facilities globally and across the three primary segments continued to operate. And it noted that some facilities that were closed had already reopened.
Despite the economic downturn and uncertainty, CAT has surged 50% since the market’s lows to outpace the S&P 500’s 45%. And CAT shares have surged 11% in the last month to double the market and top its industry, as investors look to an economic recovery, of which there are signs in the U.S. manufacturing sector.
Moving on, our current Zacks estimates call for Caterpillar’s adjusted Q2 earnings to slip 77% to $0.66 a share, on 36% lower revenue that would see it hit $9.2 billion. Peeking further ahead, CAT’s third quarter outlook shows signs of recovery and it has seen its longer-term earnings revisions climb recently, as the nearby chart highlights.
CAT also earns a “B” grade for Value in our Style Scores system. Better still, its 2.96% dividend yield crushes its industry’s 1.76% average and the S&P 500. Caterpillar stock rests 6% off its 52-week highs, which means it might have room to climb if it’s able to provide upbeat guidance.
Investors might want to wait until it reports. But CAT’s business will bounce back eventually and its dividend provides solid income amid the uncertainty, especially with interest rates so low. And the construction and mining equipment powerhouse has weathered economic downturns before, within the cyclical industrial space.
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Caterpillar Inc. (CAT): Free Stock Analysis Report
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