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Caterpillar Upgraded to Strong Buy on Construction Growth - Analyst Blog

On Jul 14, Zacks Investment Research upgraded Caterpillar Inc.CAT to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Committed to the goal of delivering incremental returns to shareholders, Caterpillar's board of directors approved a 10% increase in the company's quarterly dividend in Jun 2015, reflecting its balance sheet strength.

Caterpillar will now pay 77 cents per share to its shareholders every quarter, 7 cents more than the prior dividend of 70 cents per share. With the increased dividend, the company's dividend yield is at 3.80%, higher than Deere & Company's DE 2.50% and Joy Global, Inc.'s JOY 2.60%.

Caterpillar's first-quarter earnings per share increased 16% despite a muted mining environment, thanks to its persistent focus on operational improvement. The company expects earnings per share of around $5.00 per share in 2015 on the back of revenues of $50 billion.

Improvement in the construction sector will help to somewhat compensate the impact of a weak mining sector. The Architecture Billings Index, which is considered a leading indicator of U.S. non-residential construction, has remained above 50 in the recent months, signaling robust conditions ahead for the construction industry.

Caterpillar expects lower incentive compensation in 2015. Moreover, it has been implementing cost-reduction measures, including temporary shutdowns and cutback in flexible workforce. These efforts along with share repurchases will be accretive to the company's earnings.

Other Stocks to Consider

Another stock worth considering in the sector is AO Smith Corp. AOS with a Zacks Rank # 2 (Buy).

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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

DEERE & CO (DE): Free Stock Analysis Report

CATERPILLAR INC (CAT): Free Stock Analysis Report

SMITH (AO) CORP (AOS): Free Stock Analysis Report

JOY GLOBAL INC (JOY): 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 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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