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Bull of the Day:Caterpillar (CAT)

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Headquartered in Deerfield, IL, Caterpillar (CAT - Free Report) is the world's largest heavy-machinery maker and seen as a bellwether for global economic activity.

The company has benefitted a lot from improving global growth since it derives about half its sales from international markets.

Impressive Results

Caterpillar delivered excellent results for Q1, beating on both the top and bottom lines and also raised its guidance.

Adjusted earnings per share of $2.82 were up 120% year over year, thanks to continued strength in many of its end markets and excellent cost control.

Revenues were up 32% year over year, mainly due to improved end-user demand and favorable changes in dealer inventories.

“The combination of strength in many of our end markets and our team’s continued focus on operational excellence - including strong cost control - helped us deliver improved margins and a record first-quarter profit,” said the CEO.

“Based on our strong first-quarter results and higher demand across all regions and most end markets, we are raising our outlook for 2018.”

Caterpillar shares surged in pre-market trading but later dropped about 6% on concerns that earnings may have peaked after the CFO said during the conference call that the quarter could prove to be a “high-water mark” for the year.

The stock has rebounded nicely since then as many investors saw the dip as an excellent opportunity to buy the shares. Easing of trade war concerns also helped the stock.

Rising Earnings Estimates

Analysts have raised their estimates for the company after excellent earnings. Zacks Consensus Estimates for the current and the next fiscal year have increased to $10.58 per share and $12.03 per share from $9.85 and $11.17, before the results.

The company has been beating estimates consistently over the past few quarters. The average positive surprise for the past four quarters is 33.44%.

Caterpillar Inc. Price, Consensus and EPS Surprise

Caterpillar Inc. Price, Consensus and EPS Surprise | Caterpillar Inc. Quote


Returning Cash to Shareholders

Caterpillar has been raising dividends over the past 24 years. Their current divided yield is about 2%. The company has also been returning cash via share repurchases. Last quarter, they repurchased about 500 million shares.

The Bottom Line

In addition to a Zacks Rank #1 (Strong Buy), Zacks Industry and Sector ranks in the top 13% greatly increase the likelihood of short-to-mid- term outperformance. 

The company had to struggle with sluggish demand for many years, but with economic growth picking up in most parts of the world, their outlook has improved substantially.

And while the timing of Trump’s $1 trillion infrastructure spending plan remains uncertain, Caterpillar is expected to be a big winner from it.

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