Caterpillar Inc.

Company Description

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It offers backhoe, skid steer, multi-terrain, track-type, and wheel loaders; track, wheel, and mini excavators; select work tools; track-type tractors; motor graders; pipe layers; and related parts for the heavy construction, general construction, mining and quarry, and aggregates markets. Caterpillar Inc. was founded in 1925 and is headquartered in Peoria, Illinois.

Caterpillar Inc. Tops Earnings Estimates in Six of Last Seven Quarters

Caterpillar Inc. has topped earnings estimates in six of the last seven quarters. Over the course of the last seven quarters, the company has topped the Zacks Consensus Estimate by an average of $0.28 or almost 19%. The stock moved lower following three of previous six reports, with the biggest drop coming after the company missed expectation in the June 2011 quarter.

The lone miss of the last seven quarters was the June 2011 quarter reported in July of 2011. Caterpillar Inc. reported earnings of $1.72, $0.05 below the Zacks Consensus Estimate for a negative earnings surprise of almost 3%. The stock sold off following this report losing $5.94 in the next trading session for a 5.3% impact on share prices.

Caterpillar Inc. Most Recent Reported Earnings

On April 25, 2012 Caterpillar Inc. reported revenue of $15.9 billion, roughly $156 million ahead of the Zacks Consensus Estimate and up from $12.9 billion reported in year ago quarter. In addition, earnings per share came in at $2.37, $0.24 higher than the Zacks Consensus Estimate of $2.13. The beat of 11% was the smallest beat in percentage terms over the last seven quarters.

Caterpillar Inc. Sees Earnings Estimates Increase

Following the last several earnings releases, analysts have moved estimates higher for Caterpillar Inc. Prior to the release of December 2011 earnings, analyst were expecting the company to earn $9.05 per share in 2012. Following the report the estimate moved higher to $9.48 and currently sits at $9.54. Similarly, 2013 estimates have jumped from $10.63 in December 2011 to the current level of $11.33.

Valuations

The valuation picture for Caterpillar Inc. is very much in line with the industry average. A trailing PE of 12x is right in line with the industry average, as is the forward PE of 10x. The price to book multiple shows the highest divergence from the industry average with Caterpillar Inc. trading at 4.4x or double the 2.2x industry average. Price to sales shows a mild premium for the industry leader, with a 1x multiple compared to 0.7x industry average. Caterpillar Inc. with its billions in sales makes up a very large portion of the industry number, so it should not be a surprise that the company is so close the industry average for most of these metrics.

The Chart

The price and consensus chart shows just what aggressive growth investors are looking for. The consistent trend of higher earnings and frequent positive earnings revisions is illustrated in the earnings consensus lines in the chart. The large gap in between the lines shows that there is also a healthy amount of earnings growth. With a recovery underway, higher estimates will likely lead to a higher stock price for CAT. Caterpillar Inc. is Zacks #1 Rank (Strong Buy).

Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service You can follow him at twitter.com/bbolan1