CAT says global sales to resource industries fell 7% during the three-month rolling period, better than the 10% drop in the prior period, while retail sales to construction fell 8% vs. a 12% drop in previous period.
Total sales in the energy and transportation segment slipped 11%, an improvement from December's 22% drop, including respective declines of 15%, 15%, 8% and 7% in power generation, transportation, oil and gas, and industrial products.
The firm upgraded Caterpillar (CAT +1.7%) from Equalweight to Overweight with a price target of $110 (from $100).
"Based on our estimates, CAT transitions from the most expensive PE to the cheapest over three years," said Barclays analyst Robert Wertheimer. Several of CAT’s end markets are due for recovery, "notably mining aftermarket, mining replacement and China construction."
Caterpillar (CAT -1.1%) will relocate a number of senior execs and support staff to the Chicago area later this year as it works to establish its global headquarters in the city.
The company will still maintain a "significant" presence in the Peoria, Illinois, where it will continue to have the bulk of its employees, but will no longer build its previously announced HQ complex there.
"Since 2012, about two-thirds of Caterpillar's sales and revenues have come from outside the U.S.," said CEO Jim Umpleby. "Locating our headquarters closer to a global transportation hub... means we can meet with our global customers, dealers and employees more easily and frequently."
Caterpillar (CAT +1.1%) shares are bouncing back, making it likely that yesterday’s decline was a blip on the way to further gains, Credit Suisse analysts say in reiterating their Outperform rating.
The firm notes that while CAT trimmed 2017 guidance, mining aftermarket improved sequentially for the third quarter in a row and Q4 2016 represented the first Y/Y improvement, and December orders were up by double digits for resources broadly and for construction in North America and the EU.
CAT also sees pricing as neutral to positive for 2017, implying that the worst is over, and dealer inventory levels seem in better shape, boosting Credit Suisse's confidence that "green shoots are more in the near term vs. further out."
Wells Fargo upgrades shares to Outperform from Market Perform with a $116-$119 target range, up from $92-$95, as goodwill impairment risk is diminishing while revenue and earnings appear likely to improve from a cyclical bottom.
Q4 adjusted profit per share of $0.83, the same as the fourth quarter of 2015, on revenue of $9.6B vs. $11B a year earlier.
"Our results for the fourth quarter, while slightly better than expected, continued to reflect pressure in many of our end markets from weak economic conditions around much of the world," CEO Jim Umpleby said. "I'm confident we are focusing on the right areas: controlling costs, maintaining a strong balance sheet and investing in the key areas important to our future."
Guidance for 2017: Full-year earnings of $2.30 per share, on revenue of $36B-$39B (slightly lower at the midpoint than the $38B projected in December).
Deere & Co. (DE +0.2%) is set to benefit from a bottoming agricultural market in the coming year, according to a Baird note today.
That's in spite of a strong Q4. Shares are up 21% in the past three months.
Baird's Mircea Dobre has a $117 price target, implying 13% upside, and an Outperform rating. A bottom's coming as "North American large Ag equipment volumes are approaching prior cyclical bottoms, high horsepower equipment sales/planted acres are near 40-year lows, large Ag new equipment inventories have destocked near historical lows and while auction used equipment prices are still pressured, deterioration is nowhere near 2013-15 as selling conditions seem to be improving into 2017," Dobre writes.
Barclays is not as enthusiastic. The firm has several equipment stocks where the only upside thesis would be that prior peak earnings become the new normal. "That is the case, more or less, for Deere, for Paccar (PCAR -0.3%), and for Caterpillar (CAT -0.4%)."
Deere's trading at a multiple of 9-10 times the 2013 peak ag machinery sales number, analyst Robert Wertheimer notes. "We estimate another 3-4 years to run in the downcycle, then a few more up to normal." With a generous assumption of a multiple of 15, that would put Deere at $150 in the future; if that's five years away at a 9% discount, that implies about $105 today, he says.
The Dow Jones Industrial Average came within 13 points of reaching 20K as investors shrug off yesterday's wave of geopolitical news.
The DJIA first closed over the 10K mark on March 29, 1999.
25 out of the Dow 30 stocks are in positive territory on the day, with Goldman Sachs (NYSE:GS) and American Express (NYSE:AXP) the leaders in the group. A month-long recovery in Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) is helping to take the Dow ever so close the 20K threshold. The Dow stocks with the largest YTD gains are Caterpillar (NYSE:CAT) and UnitedHealth (NYSE:UNH), both up +38%. Nike (NYSE:NKE) is the laggard of the group, but could cut into its YTD 19% loss with a solid read on futures orders later today when it reports FQ2 earnings.
Investors who like pyschological breaking points are also watching the currency markets. The euro fell to 1.0352 against the U.S. dollar as the slow trek to parity continues. Parity was last struck in 2002.
Machinery stocks such as Caterpillar (CAT -1.5%), Navistar (NAV -3.2%) and Agco (AGCO -1.5%) have priced in the positive impact from tax cuts, infrastructure spending and a stronger economy, but they do not necessarily reflect the negative impact from rising commodity prices, Barclays analysts say.
Rising commodities are normally a positive for machinery and industrials, but Barclays believes the market is still in overhang from the last cycle, which included some of the largest fleet builds in history in construction, mining, locomotive, agriculture, and oil and gas, and used pricing remains weak and sometimes is still falling.
The firm cuts its out-year EPS for Agco to $2.50 from $2.90, for CAT to $3.16 from $3.60, and for NAV to a loss of $0.17 from a loss of $0.10.