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Should You Buy Caterpillar (CAT) Stock Ahead of Q1 Earnings?

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Shares of Caterpillar (CAT - Free Report) opened slightly higher on Monday, just one day before the construction and mining equipment giant is scheduled to report its first quarter earnings. This might signal that investors are confident about Caterpillar ahead of the release of its Q1 financial results. Let’s dive into some of the details to see if they should be.

Caterpillar is considered a bellwether for the global economy, maybe even more so than the likes of tech titans such as Amazon (AMZN - Free Report) , Netflix (NFLX - Free Report) , or Facebook . Therefore, investors will want to pay close attention to the company’s Q1 results.

CAT stock is up over 4% in the last four weeks amid an overall market downturn. But concerns about a possible Trump tariff related setback could perhaps show up in the near-term.

With that said, investors will want to know if Caterpillar’s current estimates and fundamentals make it look like an enticing stock to consider buying ahead of its Q1 report.

Latest Outlook & Valuation

Our current Zacks Consensus Estimates are calling for Caterpillar’s revenues to jump by 17.9% to reach $11.58 billion. Meanwhile, CAT’s earnings are projected to soar by 64.8% to hit $2.11 per share. The company has also earned three upward earnings estimate revisions within the last 30 days.

Heading into Monday, CAT was trading with a Forward P/E of 15.9, which falls almost directly in line with the “Manufacturing - Construction and Mining” industry’s average of 16. Caterpillar is also currently trading at a major discount to the 29x forward earnings it rested at a year ago. Furthermore, CAT was trading with a Forward P/E of 24.7 as recently as early January, which means the stock is currently offering investors strong comparative value.

Earnings ESP Whispers

Investors will also want to understand what chance Caterpillar has to surprise investors with better-than-expected earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Caterpillar is currently a Zacks Rank #2 (Buy) and sports an Earnings ESP of 4.07%. CAT’s Most Accurate Estimate—the representation of the most recent analyst sentiment—calls for earnings of $2.20 per share, which comes in 9 cents above our current consensus estimate.

This means that the most recent analyst estimates have come in higher than our current consensus, which signals that Caterpillar is a stock that could beat Q1 earnings estimates.

Surprise History

Caterpillar’s earnings surprise history and the effect that these surprises have had on CAT’s share prices are two other important factors to consider ahead of the industrial heavyweight’s first quarter earnings report.

Caterpillar Inc. Price, Consensus and EPS Surprise

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

We can see that Caterpillar has consistently topped earnings estimates over the last few years, posting an average earnings surprise of 51.6% over the trailing four periods. With that said, these beats have also often led to positive momentum immediately following CAT’s earnings release.

We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Over the course of Caterpillar’s long streak, the stock has turned positive in seven of the previous ten windows.

Caterpillar is scheduled to report its first quarter financial results before the market opens on Tuesday, April 24.

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