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Caterpillar (CAT) Hits Rough Waters; Takes Peers Along

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Caterpillar Inc. 's CAT share price plunged to a new 52-week low of $62.99 on Sep 29, before closing higher at $63.79. Shares of this mining and construction equipment behemoth have lost 9% of their value since its guidance cut announcement on Sep 24 amid weakness in its main industry sectors, mining and energy. The company's share price fell nearly 6.3% in a day following the news and hit a 52-week low of $64.65. Year to date, Caterpillar shares have yielded a negative return of roughly 28.53%.

For 2015, the company expects revenues of $48 billion; $1 billion lower than the previous expectation due to broadly weaker business conditions across its three large segments - Construction Industries, Energy & Transportation and Resource Industries. For 2016, the company expects sales to be 5% below 2015 levels with decline across all three of its aforementioned major segments. The most significant decline is anticipated in the oil and gas portion of the Energy and Transportation segment. If this materializes, the company's revenue would drop for four years in a row for the first time in its nine-decade long operations.

Caterpillar's sales continue to bear the brunt of weak mining demand as mining companies keep on reducing their capital expenditures. Lower oil prices too, adversely impacted both engine sales for oil production and demand for construction machines used in energy site preparations. Moreover, construction equipment sales are way below prior peaks in North America, Latin America, Europe, Africa, the Middle East and Asia Pacific.

In order to stay profitable in the wake of reduced revenue expectations, Caterpillar has perked up its restructuring actions that are expected to lead to annual savings of $1.5 billion in operating costs, once they are executed. The company will start implementing the actions in late 2015.

Caterpillar's dismal performance and outlook do not bode well for industrial stocks as the company is often considered a bellwether of economic activities. Hence, it is not a surprise that Caterpillar has dragged its peers with it.

Deere & Company DE , the $24.2 billion enterprise, which manufactures agricultural and forestry equipment, construction equipment and engines, fell to a 52-week low of $73.70 yesterday. Joy Global, Inc. JOY , the manufacturer of surface and underground mining equipment followed suit, dipping to its 52-week low of $14.67. Manufacturer of equipment for construction, infrastructure, and surface mining industries, Terex Corporation TEX plunged to a 52-week low of $16.54. Likewise, Astec Industries and Manitowoc also fell to their respective 52-week lows of $33.36 and $14.51.

At present, Caterpillar and Astec carry a Zacks Rank #3 (Hold) while Deere, Joy Global, Terex and Manitowoc have a Zacks Rank #5 (Strong Sell).

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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 Nasdaq, Inc.


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

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