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Why Caterpillar (CAT) Might be Well Poised for a Surge

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Caterpillar (CAT - Free Report) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this construction equipment company, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Caterpillar, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

Current-Quarter Estimate Revisions

The company is expected to earn $3.74 per share for the current quarter, which represents a year-over-year change of +39.03%.

Over the last 30 days, the Zacks Consensus Estimate for Caterpillar has increased 11.51% because nine estimates have moved higher while one has gone lower.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $13.41 per share, representing a year-over-year change of +24.05%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Caterpillar. Over the past month, 10 estimates have moved higher compared to two negative revisions, helping the consensus estimate increase 6.04%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Caterpillar currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Caterpillar shares have added 20.3% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.

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