By Brendan Gilmartin, VP Research & Content
Caterpillar (NYSE:CAT) is scheduled to report Q1 2013 earnings before the opening bell on Monday, April 22. The results are typically released at 7:30 a.m. ET with a conference call slated for 11:00 a.m. Caterpillar shares have been selling off in recent months amid concerns over the outlook for the global economy, particularly in China. Keep an eye on the index futures at the time of the release, given the potential magnitude of these results.
Outliers and Strategy
The options market is pricing in a 3% move off earnings, while the average change in reaction to earnings is 4%. The Street is looking for Caterpillar to deliver EPS of $1.44 (range is $1.20 to $1.70) on revenue of $13.81 billion, down 13.6% from the year-ago period (source: Yahoo Finance).
Look for Caterpillar to possibly provide an updated forecast for 2013:
- Earnings Per Share Guidance (FY 2013): The current consensus is $7.91, the midpoint of the range of $7.00 to $9.00 provided in January. The market is currently pricing in a downward adjustment to this forecast. Should the company reiterate this previous view, look for a potential reversal.
- Revenues Guidance (FY 2013): Back in January, Caterpillar said the outlook for 2013 is for sales and revenues to in the range of $60 billion to $68 billion. The estimate is $63.16 billion.
- April 17: Jefferies lowered the Q1 EPS estimate on Caterpillar from $1.40 to $1.35 and reduced the price target from $95 to $75 in advance of the Q1 earnings release, according to a post on StreetInsider.com. The firm cited lower demand for mining equipment.
- April 17: Macquarie Research cut Caterpillar to Neutral from Outperform and reduced the price target to $88 from $112, according to StreetInsider.com. The firm attributed the weak outlook to weaker growth in China.
- April 15: China reported GDP slowed to 7.7% in the Q1 period, below estimates of 8.00%. China makes up most of the sales in Asia.
- April 10: Caterpillar voted to maintain the quarterly dividend of $0.52/share.
- March 25: Caterpillar announced the opening of a new facility and the completed expansion of another facility in Wuxi, China. Both facilities are part of the Advanced Components and Systems Division, which designs and manufactures components for its machines.
Caterpillar shares have tumbled to the lowest level since mid-November and are off nearly 20% from the late-January peak ($99.49). But with limited downside to the 52-week low of $78.25 (July 12, 2012) much of the weakness may be priced in at these levels. Furthermore, the Relative Strength Index (RSI) is well below the key 30-level, indicating an oversold scenario. That said, flat to in-line results for the quarter could lift Caterpillar shares back toward $84.00, followed by the next resistance area of $86.00.
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Caterpillar shares have come under heavy selling pressure in the past several months and are hovering just above the 52-week low, due to a weakening economic backdrop in China and declining metals prices crimping demand for mining equipment. But with sell-side sentiment so soft and the shares exhibiting oversold conditions, Caterpillar could reverse course, so long as it reiterates its outlook for the balance of the year and meet reduced analyst estimates for the Q1 period. Even in the event of a miss the shares are trading at just 9.6x trailing earnings, half the five-year average and a mere 0.8x sales, implying downside for Caterpillar is limited.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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