Cat-astrophe? No, But There Is A Good Case Against Caterpillar Shares
DoctoRx • 48 Comments
DoctoRx • 48 Comments
Thu, Dec. 1, 11:51 AM
- Caterpillar (NYSE:CAT) shares had been halted earlier this hour pending the disclosure.
- On FY 2017 revenue, labels $38B consensus forecast "a reasonable midpoint expectation," citing sustained commodity prices, China construction, developing nations construction and encouragement on potential U.S. infrastructure bill, tax reform, new regulation, commodity prices and recent OPEC developments. However, cites concerns involving volatile oil prices, North American weakness, economic growth in Europe post-Brexit, power generation and North American rail customer sales.
- For 2017 EPS, views $3.25 "too optimistic considering expected headwinds," noting that at $38B, sales are approximately $1B lower than 2016 outlook, resulting in a variable margin headwind of $350M-$450M. Additionally observes short-term incentive compensation for employees projected to come in $500M-$600M higher than in 2016 and for Cat Financial to be unfavorable at around $100M. On the tailwind side, sees $300M-$400M in cost reduction carryover resulting from restructuring activities, and further, cost reductions and operational improvements to be favorable at $300M-$500M.
- Remains committed to decrementals of 25%-30%, excluding restructuring costs.
- Caterpillar shares +0.63% at $96.16.
- Credit Suisse conference presentation (ongoing)
Thu, Dec. 1, 7:54 AM
- Deutsche Bank analyst Nicole DeBlase said the machinery group could be due for a breather following its 12% post-election rally, but she still views Caterpillar as her top pick on a relative basis given her "very high conviction" that EPS is bottoming.
- The analyst, who sees a combination of restructuring, a recovery in mining and infrastructure stimulus to drive EPS growth in 2017, kept a $102 price target on Caterpillar shares.
- CAT +0.5% premarket
Wed, Nov. 23, 3:39 PM
- Deere (DE +11.3%) powers to all-time highs following its easy FQ4 earnings and revenue beats, as factors ranging from machinery pricing to lower overheads spending helped it report a much smaller-than-expected decline in quarterly earnings, CFO Raj Kalathur said during today's earnings conference call.
- DE forecasts FY 2017 sales of its farm and construction equipment will fall by 1% Y/Y, but analysts were expecting sales to drop by ~3% after sliding 9.3% to $23.4B in 2016, and predicts next year's profit will slip by just 1% following a 21% decline in 2016 to $1.5B.
- DE also said prices for new and used equipment firmed in the quarter, taking pressure off dealers to offer discounts that squeeze margins.
- "It's not that the cycle is turning, it is that they are managing it better than before," Jefferies analyst Stephen Volkmann says.
- Caterpillar (CAT +2.7%), which has some market overlap with DE, surges to its best levels since December 2014, while AGCO (AGCO +3.4%), Lindsay, CNH Industrial (CNHI +4.7%) and Tractor Supply (TSCO +0.8%) also are higher.
Tue, Nov. 22, 3:37 PM
- With $4.5B of short interest, Exxon Mobil (NYSE:XOM) leads the way, followed by IBM at $3.7B. Rounding out the top ten: AT&T (NYSE:T), Caterpillar (NYSE:CAT), Chevron (NYSE:CVX), Boeing (NYSE:BA), GE, Procter & Gamble (NYSE:PG), Abbot Labs (NYSE:ABT) and Disney (NYSE:DIS).
- Most interesting from that list are Cat, Boeing, and Abbot Labs as their market caps are significantly smaller than the other seven.
- Of the top 50 short positions, there are two names in which the short interest rises to as high as 10% of the market cap: Freeport-McMoRan (NYSE:FCX) and Digital Realty Trust (NYSE:DLR).
- Previously: Goldman's list of stock longs mattering most to hedge funds (Nov. 22)
Tue, Nov. 22, 8:28 AM
Fri, Nov. 18, 10:17 AM
- Caterpillar (CAT -0.8%) reports a 12% Y/Y drop in worldwide retail machine sales for the rolling three-month period ending in October, but that's an improvement over September's 18% drop and August's 17% decline.
- CAT says global retail sales to resource industries fell 24% during the three-month rolling period, better than the 37% decline in the prior period, while retail sales to construction fell 8% vs. a 10% drop in previous period.
- Total sales in the energy and transportation segment tumbled 28%, worse than September's 25% drop, including respective declines of 33%, 32%, 29% and 21% in power generation, transportation, industrial, and oil and gas products.
Sat, Nov. 12, 4:43 PM
- Barron's speaks with several prominent money managers.
- They are hopeful that Donald Trump will enact pro-growth tax and fiscal-stimulus policies, while avoiding overly protectionist measures.
- Even though biotech stocks have already rallied 10%, fund manager Arun Daniel believes that the benefits of a Trump administration on the bottom lines of biotech and drug companies are not yet fully priced in. ETFs: IBB, XBI, BIB, BBH, FBT, HQL, PBE, BIS, LABU, BBC, BBP, CNCR, LABD, UBIO, ARKG, ZBIO, LABS
- He's also bullish on stocks leveraged to government-backed infrastructure spending, his favorites being Jacobs Engineering (NYSE:JEC) and Martin Marietta Materials (NYSE:MLM).
- Some companies will likely be allowed to repatriate billions of dollars of profits at a low tax rate. Major beneficiaries could include Nike (NYSE:NKE), Procter & Gamble (NYSE:PG), Caterpillar (NYSE:CAT), Visa (NYSE:V) and Mastercard (NYSE:MA).
- Neuberger Berman's Joseph Amato says that a Trump administration will be better for stocks than bonds. "If [Trump] takes a measured approach and gets some level of concessions for U.S. workers, the trade concerns may be much ado about nothing," Amato says. "But that's a big if."
Wed, Nov. 9, 3:35 PM
- Investors are betting that some big U.S. manufacturers such as Caterpillar (CAT +7.7%) could benefit from possible changes in energy, climate and tax policies in the Trump administration.
- CAT is "looking forward to building those bridges," says VP for global government and corporate affairs Kathryn Dickey Karol, adding that the company is excited about Trump’s calls for improving the U.S. transportation network.
- CAT says it will continue to push for adoption of the Trans-Pacific Partnership during the remaining days of the Obama administration; Martin Richenhagen, Chairman and CEO of farm equipment maker Agco (AGCO +0.9%), says he is concerned about Trump’s repeated support for trade protectionism during the campaign.
- The potential for federal spending boosted the likes of Fluor (FLR +10.1%), Aecom (ACM +12.6%), Jacobs Engineering (JEC +9.8%), Manitowoc (MTW +14.2%), Terex (TEX +14.8%), Vulcan Materials (VMC +9.8%) and Martin Marietta Materials (MLM +11.5%).
- Shares in Deere (DE +1.4%), Paccar (PCAR +4.5%) and Navistar (NAV +7.2%) also are higher.
Wed, Nov. 9, 2:44 AM
- With Donald Trump elected as the 45th President of the United States, one of the biggest beneficiaries might be Mexican cement company Cemex (NYSE:CX).
- Trump has campaigned to build a wall on the Mexican border and immediately begin the process of deporting illegal immigrants with criminal records.
- Other beneficiaries: MLM, VMC, GVA, TTEK, X, NUE, STLD, DE, CAT, FLR, KBR
Wed, Oct. 26, 5:56 PM
- "The Caterpillar kills the bull," Raymond James analysts proclaim, believing yesterday's earnings report should end any arguments for CAT shares (I, II) heading higher after gaining 24% YTD.
- CAT noted specifically that construction activity and construction equipment sales in North America during H2 2016 would come in lower than expected in its previous 2016 outlook, and that “this weakness could continue into 2017.”
- Although sentiment around mining has "definitely improved, there are still many idle trucks on customer sites, and we have not seen an increase in orders for new equipment," CAT said.
- Barclays notes that revenues declined in all segments, but operating margins rose in construction and energy and transportation while falling modestly in resources - a pattern the firm says is not typical for machinery companies, a disconnect it suspects is due to substantial and solid restructuring.
Tue, Oct. 25, 6:34 PM
- Caterpillar (NYSE:CAT) fell 1.7% in today's trade after posting a Q3 earnings beat but cutting its sales forecast for a fourth time and warning of continued weakness next year as miners and builders defer orders amid sluggish growth and low commodity prices.
- CAT cautiously points to potentially optimistic signs for 2017 - commodity prices are off their lows, there are signs of improvement in the Chinese construction market, and construction sales in Russia and Brazil may be bottoming - but it also predicts construction activity and equipment sales in North America will continue falling short of predictions, and notes continued uncertainty in Europe in the wake of the U.K.’s Brexit vote.
- CAT's $0.85 in EPS and $9.16B in revenues for Q3 represent a significant Y/Y decline from a respective $1.05 and $10.96B, yet the stock has made significant gains over the last 12 months, suggesting the market is betting on conditions improving soon for the company even as the lower guidance indicates that is not going to happen, Martin Tillier writes.
Tue, Oct. 25, 8:08 AM
- Q3 EPS excluding restructuring costs of $0.85 compares to $1.05 a year ago, on revenue of $9.2B vs. $11B a year earlier.
- "Economic weakness throughout much of the world persists and, as a result, most of our end markets remain challenged," CEO Doug Oberhelman said. "However, there were a few bright spots this quarter... I'm pleased with how Caterpillar has responded and our team's incredible focus on reducing costs and pulling through profit despite sluggish end markets."
- Guidance for 2016: Full-year earnings of $3.25 a share (vs. $3.55 previously), on revenue of about $39B (vs. $40B-$40.5B). Restructuring costs, which were anticipated to be about $700M, are now expected to be about $800M.
- CAT -2.4% premarket
- Q3 results
Tue, Oct. 25, 7:31 AM
Mon, Oct. 24, 5:30 PM
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Mon, Oct. 24, 10:28 AM
- Caterpillar (CAT -0.1%) reports an 18% drop in worldwide retail sales of machines for the rolling three-month period ended in September, in-line with monthly declines posted in the two previous months.
- CAT says global retail sales to resource industries worldwide tumbled 37% during the three-month rolling period, a bit better than a 39% drop in the prior three months, while retail sales to construction industries fell 10% vs. 9% in the prior period.
- Total sales in the energy and transportation segment fell 25%, the same as in August, including respective declines of 44%, 26% and 15% in transportation, power generation, and oil and gas products.
Wed, Oct. 19, 5:47 PM
- Jim Chanos tells CNBC he is still shorting Caterpillar (NYSE:CAT) since the company's fundamental story has not changed, and reiterates the combination of Tesla (NASDAQ:TSLA) and SolarCity (NASDAQ:SCTY) is "completely perplexing" and "makes no sense."
- CAT is up ~30% YTD but Chanos claims "the fundamentals by our view have not yet changed... [regarding the real estate and debt bubble in China] the collapse has not happened, the unwind has not happened. That's ahead of us, not behind us."
- "The supercycle in commodities that peaked out in '11 and '12... was a once-in-a-lifetime kind of thing," Chanos says. "The overcapacity that exists in mining, mining equipment, construction equipment is serious."
- On TSLA, Chanos says the company would double its cash burn by taking over SCTY and calls the deal a “big distraction.”