By Brendan Gilmartin
Caterpillar (CAT) is scheduled to report 1Q 2012 earnings before the opening bell on Wednesday, April 25. The results are typically released at 7:30 a.m. EST with a conference call slated for 11:00 a.m. Caterpillar is up about 20% year to date, thanks to renewed optimism over the outlook for the global economy, particularly China. Keep an eye on the index futures at the time of the release given the magnitude of these results.
Outliers & Strategy
The Street is looking for Caterpillar to deliver EPS of $2.13 (range is $1.83 to $2.33) on revenue of $16.22 bln, up 25.3% from the year-ago period (Source: Yahoo! Finance).
Look for Caterpillar to possibly provide an updated forecast for 2012:
Revenue Guidance (2012): Back in January, Caterpillar said the outlook for 2012 revenue is expected to be in a range of $68 bln to $72 bln. The consensus is toward the high end of the range at $71.30 bln.
Earnings Per Share Guidance (2012). Caterpillar previously indicated profit per share is expected to be about $9.25- the midpoint of the sales and revenue range. The consensus is $9.54. LOOK FOR CATERPILLAR TO THEREFORE RAISE ITS OUTLOOK. Anything less may be seen as a disappointment.
Sympathy Plays: Cummins Inc. (CMI), Komatsu (KMTUY.PK), Deere & Co. (DE), Joy Global (JOY).
Recent News
- 04/16: Bank of America upgraded Caterpillar from Neutral to Buy and raised the price target from $127 to $134, according to a report on Benzinga.com. The firm reportedly believes the recent pullback provides an attractive entry point, while the currently low multiple reflects the macroeconomic uncertainty. Channel checks also point toward strength in North America and stabilization in Europe and Asia.
- 04/11: Caterpillar voted to maintain the quarterly cash dividend of $0.46 per share. The current yield is 1.72%.
- 03/21: Raymond James cut Caterpillar's price target from $140 to $130 in response to the February dealer stats, according to a post on Benzinga.com. The firm noted the sales data suggests Caterpillar is not likely to report a "blow-out" quarter.
Technical Review
Caterpillar shares are up about 20% YTD, but well below the 52-week high of $116.95 established on February 24. Since then, the shares have been making lower highs, while the 20-Day SMA slipped below the 50-Day - a sign that momentum is waning. Near-term, support is at the $105-level, with downside risk to $100 in the event of a weaker-than-expected report, followed by $97.50 - just above the 200-Day SMA. Conversely, resistance is at the 50-Day SMA near $110, followed by the recent highs in the $112.50/$115.00 area. (Chart courtesy of StockCharts.com).
(click to enlarge)
Summary
Caterpillar shares are off the recent high near $116 amid concerns that sales could fall shy of forecasts, stemming from weaker-than-expected dealer stats released last month. However, those concerns may be priced in with the shares now trading at a mere 14.5x earnings, well below the 5-year average of 19.2x and just 1.2x sales. Macro uncertainty may also be priced in at these levels. However, it's worth noting that the consensus estimates for the balance of 2012 are at the high end or above the range Caterpillar provided for EPS and revenue. Failure to meet these lofty expectations could be seen as a disappointment.
Disclaimer: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
