Watch The Big CAT Roam

| About: Caterpillar Inc. (CAT)

Caterpillar's (NYSE:CAT) big yellow machines are used the world over, with 70% of the company's sales coming outside North America. The company operates in four segments:

  • Construction Industries (33% of revenues and 21% operating profit in 2011)
  • Resource Industries (26%, 34%)
  • Power Systems (33%, 31%)
  • Financial Products (5%, 6%)

The Wall Street Journal reported Friday striking workers had accepted reduced health-care and pension benefits and ended a 3 ½ month strike. Caterpillar said it was "pleased" by the vote and "ready to get this behind us." The stock was up Friday: CAT +$1.42 (1.60%) to $90.01.

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CATERPILLER, INC. (CAT)

Price $90.01

Market Cap: $58.80 Billion

P/E (NYSE:TTM): 10.07

EPS: $8.94

Div/Yield: $2.08 (2.4%)

Q2 Results

On July 25, 2012 the company reported Q2 net income of $2.54 versus the prior year $1.52 on a 22% rise in revenue. The results easily beat street estimates. The company slightly reduced the high-end of revenue estimates to $68-$70B from the previous $68-72B, and EPS to roughly $9.50/share for the year.

July Dealer Stats

July dealer stats were quite bullish: total machine sales grew 14%, in line with CAT's expectations and accelerating from the 11% growth seen in June and May. NA sales were up 25% year-over-year. Asia Pac accelerated sharply - up 28% y/y versus 16% in June. Sales in Europe have been holding steady with declines offset by replacement demand. Engine growth decelerated in July to +4% y/y. Oil and gas sales grew 20% y/y versus 29% growth in June - mostly due to tough comparisons.

Historical Earnings Per Share:

Q1

Q2

Q3

Q4

Year

2012

2.37

2.54

2.37*

2.57*

9.85*

2011

1.84

1.52

1.71

2.32

7.40

2010

0.36

1.09

1.22

1.47

4.15

2009

-0.19

0.60

0.64

0.36

1.43

2008

1.45

1.74

1.39

1.08

5.66

2007

1.23

1.24

1.40

1.50

5.37

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*S&P estimate

Looking at the earnings chart above, CAT has recovered quite nicely from the 2008/9 crisis period. Earnings have grown significantly and steadily from 2010 through Q2 of 2012. With 70% of its revenue coming from outside North America, and with the July dealer stats showing accelerating growth in Asia Pac as well as NA, it would appear the company is on track to meet analysts' average estimate of $9.62/share. If there is no change in the PE (currently 10.1), the stock goes to $97.16 on those earnings. That would be roughly 7% higher than today's closing price of $90.44. Not bad considering there are only 4 months and change left in the year.

However, on the back of the Q2 beat and bullish July stats, CAT may well beat consensus estimates and receive some PE expansion in the process. In that case, the stock could run toward the S&P and Credit Suisse estimates. Both companies have 12 month price target of $117 on CAT. That would be a 30% capital gain from current levels - and don't forget the 2.4% dividend yield.

With the strike behind it and favorable fundamentals, the future looks quite bullish. Still, the obvious risk of a resumed downturn in global economies is a consideration, and probably why the PE is only 10 for a company growing earnings as the rate Caterpillar is.

Meantime, the BIG CAT is roaming…and its territory is planet Earth!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.