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An Early Preview of Caterpillar's (CAT) Q1 Earnings Outlook

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Caterpillar (CAT - Free Report) has seen its stock price sink more than 11% over the last 12 weeks. The construction and mining equipment power’s shares have tried to recover recently, but it might take strong first quarter financial results for CAT to get back on track amid the current market volatility.  

Caterpillar posted pretty substantial top and bottom line beats in the fourth quarter. The company’s adjusted earnings of $2.16 per share surpassed our Zacks Consensus Estimate of $1.77 per share by 22%. CAT’s Q4 revenues came in at $12.9 billion, well above our $11.9 billion estimate.

Despite these solid fourth quarter results, shares of Caterpillar closed Friday trading at $150.23 per share, far below the $169.37 per share they traded at directly following the release of Caterpillar’s Q4 results in January.

This might signal that Caterpillar’s recent downturn is based more on overall market trends than company specific worries, but many investors can’t afford to take that risk during this recent bearish stretch. Therefore, they should look for stocks that are poised to perform well during first quarter earnings season in order to try to avoid any further turmoil.

With that said, let’s check out Caterpillar’s upcoming first quarter estimates to see what might be in store.

Outlook & Valuation

Our current Zacks Consensus Estimates are calling for Caterpillar’s Q1 revenues to surge by 18.9% to reach $11.68 billion. Maybe more impressively for a company of its size, CAT’s first quarter earnings are projected to skyrocket by 62.5% to hit $2.08 per share.  

Meanwhile, Caterpillar has experienced mixed earnings estimate revision activity over the last 30 days, earning two upward revisions against one downward revision.

Investors should note that Caterpillar’s Most Accurate Estimate is $2.12 per share, which is 4 cents above our current consensus estimate. This means that estimates have come in higher as we inch closer to Caterpillar’s Q1 earnings.

CAT is also currently trading with a Forward P/E of 15.81, which marks the slightest of discounts compared to the “Manufacturing - Construction and Mining” industry’s average of 15.85.

Price Performance and Surprise History

Another important factor that investors might want to consider ahead of Caterpillar’s Q1 earnings report is the company’s history of earnings surprises and the effect that these surprises have had on share prices.

Caterpillar Inc. Price, Consensus and EPS Surprise

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

Investors can see that Caterpillar has posted a strong earnings surprise history over the last few years, including an average surprise of 51.6% in the trailing four quarters. It is also worth noting that Caterpillar’s stock price has sunk immediately following the release of its quarterly earnings results multiple times, despite these beats.  

Bottom Line

With that said, past performance does not necessarily indicate future success or failure, and we will have a better idea of where the construction and mining equipment giant stands closer to its report date, which is scheduled for April 24.

However, investors should remember that Caterpillar is expected to see its top and bottom lines expand significantly in the first quarter, which is impressive for a company of its age and size.

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