Caterpillar Inc. (CAT - Analyst Report) shares attained a 52-week high of $89.87 during intraday trading on Oct 5, finally closing lower at $89.42. The company has delivered a year-to-date return of about 28.7%. Caterpillar has a market cap of $52.24 billion. Average volume of shares traded over the last three months was approximately 4.34 million.
What's Driving Caterpillar?
The rise in Caterpillar’s share price seems to have been triggered by higher-than-expected U.S. manufacturing data. The ISM Manufacturing Index, a measure of production activity, came in at 51.5 for September, after a 49.4 reading in August.
Further, as per its August sales report, the company witnessed the first positive overall reading in Asia (2%) since Nov 2012. Also, in the Construction Industries, Asia Pacific remains a consistent bright spot with 12% surge, marking its sixth consecutive month of growth and the best reading so far this year. It is also worth noting that the construction industry in EAME has improved, logging a 1% increase in August, reversing the 3% decline in July. Barring July, growth in the EAME Construction industry has been positive in the past four months, albeit in the low-single digits.
Construction-related activity also continues to improve in the U.S. The Architecture Billings Index, which is considered a leading indicator of U.S. non-residential construction, has remained above 50 in the recent months, signaling robust conditions ahead for the construction industry. Improvement in the construction sector will help to partially offset the effect of the weak mining sector.
As sales continue to be hampered due to weak end markets, Caterpillar’s goal is to reduce costs, such that the decline in operating profit is no more than 25–30% of the decline in sales and revenues. The company has boosted its restructuring actions and has effectively reduced $1.1 billion in costs year to date and is planning a target of over $2 billion for the full year. It also continues to contemplate facility consolidations and closures in order to right size its capacity needs. Caterpillar recently announced it is considering allocation of the volumes produced at its facility in Gosselies, Belgium, to other manufacturing facilities to reduce manufacturing capacity and cut down operating costs in the wake of lower demand.
Also, the company has delivered a positive earnings surprise of 5.20% in the recent four quarters. Caterpillar’s estimates for 2016 have gone up 0.3% in the past 60 days to $3.51 per share. For 2017 also the estimates have moved north 0.8% to $3.56 over the same period.
Caterpillar currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Brady Corp. (BRC - Snapshot Report) has delivered a 9.98% return in the past 1 year. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Greif Inc. (GEF - Analyst Report) and Berry Plastics Group, Inc. (BERY - Snapshot Report) also sport a Zacks Rank #1. While Greif generated a 19.8% return over the past 1 year, Berry Plastics delivered a return of 5.6% over the same time frame.
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