Will Caterpillar Beat Wall Street Expectations?

| About: Caterpillar Inc. (CAT)
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Caterpillar Inc. (NYSE:CAT) is set to report FQ1 2014 earnings before the market opens on Monday, January 27. Shares of Caterpillar did not do well in 2013. On a year when the Dow Jones Industrial Average Index returned 26.5%, Caterpillar stock regressed from $93.28 to $90.81. image

Caterpillar had beaten the Wall Street profit consensus 5 quarters in a row, but has failed to meet the mark in the past 3 periods. This quarter the buy-side is expecting Caterpillar to continue its decline, but simultaneously beat the Wall Street expectations which could serve as some consolation and satisfy investors.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see All Estimates for Caterpillar)

The current Wall Street consensus expectation is for Caterpillar to report $1.29 EPS and $13.503B revenue while the current Estimize.com consensus from 22 Buy Side and Independent contributing analysts is $1.32 EPS and $13.594B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Caterpillar to beat the Wall Street consensus on both profit and revenue.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average differential between the 2 groups' forecasts.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly-- it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus. image

The distribution of estimates published by analysts on Estimize range from $1.23 to $1.85 EPS and $13.200B to $15.150B in revenues. This quarter we're seeing a large distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A larger distribution of estimates signaling the potential for greater volatility post earnings, because the market is less certain of what it should expect.image

This quarter we have seen downward analyst revisions from both Wall Street and Estimize. The Street's profit consensus has fallen from $1.82 to $1.29 EPS while the Street's revenue forecast has dropped significantly from $14.939B to $13.503B. Meanwhile, the Estimize EPS consensus has also fallen from $1.47 to $1.32 while the Estimize revenue consensus has also decreased from $14.135B to $13.594. Timeliness is correlated with accuracy, and declining analyst sentiment going into an earnings report is often a bearish indicator. image

The analyst with the highest estimate confidence rating this quarter is BradHewitt91 who projects $1.23 EPS and $13.275B in revenue. In the Winter 2014 season, BradHewitt91 is currently ranked as the 14th best analyst and is also ranked 14th overall among over 3,500 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case BradHewitt91 disagrees with the Estimize consensus and is forecasting Caterpillar to miss Wall Street's expectations on both EPS and revenue.

Disclosure: No positions.