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In 2013, Caterpillar (CAT - Analyst Report) was perennially in ‘bear of the day’ territory thanks to a sluggish outlook and weak company fundamentals. It also didn’t help that the company missed earnings estimates in each of the last four quarters, signaling that the firm was having quite a bit of difficulty in living up to even subdued expectations.



However, in the past month or so, Caterpillar seems to have stabilized, and has actually beaten out the market’s return for the time frame. And even more important, the company finally ended its streak of missing earnings estimates thanks to a strong beat before the bell.

CAT earnings  

Caterpillar saw earnings of $1.54/share, easily beating out the Zacks Consensus Estimate of $1.29/share. This also crushed the year ago earnings figure, and it was actually the only quarter in fiscal 2013 that Caterpillar saw year-over-year earnings growth.

Although revenues slumped, costs plunged for the quarter, and were really the key to this earnings beat. COGS and SG&A expenses both fell by 11%, while research and development costs went down by 24%.

Also, the company’s CEO, Doug Oberhelman, said that the firm was seeing some ‘signs of improvement in the world economy’ and that it was expecting 2014 EPS of $5.85. This is a bit higher than our current consensus of $5.75/share, helping to push the stock up over 4% on the session.

It suggests that estimates may have to rise in the near term for CAT, which could help to push this Zacks Rank #3 (Hold) stock up to ‘Buy’ territory. The firm was recently upgraded from a ‘sell’ so this could suggest that CAT is really tuning it around this year, and the company might be looking like a little better play this time around.

Not So Fast

However, before investors jump on the bandwagon, there are plenty of issues to keep in mind. Revenues declined 10% for the quarter, while the environment in the key Asia/Pacific segment was especially poor. In this region, revenues were down 29% (year-over-year), and given the current bout of weakness in China manufacturing, there is plenty of reason to be concerned about CAT’s ability to turn this business around.

Personally, I am not too optimistic on this firm over the medium term, as it looks like a big reason for the strength in earnings was cost cutting as opposed to growth in demand. Still, in the short term, it does look like a bit of a bounce is long overdue in this behemoth, and especially so if estimates rise and push this stock to a better Zacks Rank.

But what about you?

Do you think that CAT is approaching ‘buy’ territory, or will weakness in emerging markets (and the broad Pacific region) push this stock back down again in 2014?

Let us know in the comments section below!

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