Caterpillar's (CAT) shares haven't performed as well as the broad market in 2012 -- not by a long shot. In fact, the global economic bellwether's stock is down sharply since January, lagging the S&P 500 by more than 20%.
On September 24, the company cut its earnings guidance for 2015, citing slowing economic growth. While the company said it expects EPS in 2015 to be between $13 and $18 per share, The Wall Street Journal notes that Caterpillar also indicated what earnings would be under more adverse conditions. Currently, the shares trade at around 14 times what the company estimates its earnings will be ($6 per share) in 2015 -- if sales fall 15% between now and then, a downturn only half as severe as that experienced in 2008 and 2009. This suggests that the market sees this as far more likely than the $13.74 EPS number the Street is looking for three years from now.
Given that during the above mentioned call, CEO Doug Oberhelman told analysts that he has "seen a slowing in economic growth more than ...expected", investors might have anticipated how Caterpillar's third quarter earnings report would come out.
While the company reported a profit that beat expectations ($2.54 versus $2.22), revenue came in well short of estimates and, more importantly, the company cut its 2012 forecast for the second time this year, citing "continued economic weakening and uncertainty." Oberhelman said China and Europe are struggling and the U.S. economy is sluggish, and while he struck a relatively positive tone about the future, he noted that it was important to be "pragmatic."
For its part, The Wall Street Journal also recommends pragmatism, suggesting investors
"...might want to hedge against what Caterpillar dubs a "more severe" downturn... [as] a sharp drop in business could cut 2015 earnings per share to just $3.50. If that comes to pass, a slump in machine sales for the three months ended in September may turn out to be the first warning." (emphasis mine)
So far, the market has taken the company's earnings in stride, but make no mistake, the company's report betrays what most investors already know: the outlook for the global economy is darkening. Don't expect Caterpillar's shares to move up appreciably over the coming years. This stock is a "hold" at best.