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Chicago, IL – August 16, 2018 – Today, Zacks Investment Ideas feature highlights Features: Caterpillar (CAT - Free Report) .
Caterpillar’s On Sale
It’s been a rough year for shares of Caterpillar, which are currently trading 25% below their all-time highs which were reached in January. Despite several consecutive earnings beats and continually improving guidance, investors seem to be focusing on the negative effects of the trade war, with tariffs on both sides raising both the costs of raw materials used by Caterpillar and the net cost of their finished goods sold in overseas markets.
Actual results at Caterpillar could hardly be better. After reporting a record first quarter, CAT improved on those results in Q2 and significantly raised guidance for the second time in a row. Expected to earn $2.66/share, the company posted a net of $2.97/share on $14B in revenue. Those numbers represent gains of 24% in sales and almost 100% in earnings compared to the second quarter of 2017.
In addition to top and bottom line beats, CAT reported an increase in operating profit – from $1.2B in 2107 to $2.2B, a favorable impact from currency transactions and a lower effective tax rate. Increased operating cash flows allowed the company to raise the quarterly dividend 10% to $0.86/share. Even after accounting for an expected $100-200 million dollar impact from tariffs and higher materials and freight costs, CAT raised full-year earnings guidance for the second quarter in a row to a range of $10.50-$11.50/share. Guidance had previously been $9.75 - $10.75/share.
The company expects to offset these higher costs “through announced mid-year price increases and using the Operating & Execution Model to further drive operational excellence and structural cost discipline.”
In addition to the 2.5% dividend yield, CAT is aggressively returning cash flow to shareholders though the remainder of a previously announced share repurchase program which has $4.2B remaining in 2018, and an additional $10B buyback which was recently authorized by the board to begin in 2019 with no expiration date.
Though the markets seem to be focusing on a potential slowdown in global growth when it comes to Caterpillar, the company stated that “Most end markets continue to improve, order rates are healthy, and the backlog remained solid in the quarter. For certain applications, particularly in oil and gas mining, the company is seeing strong demand and taking orders for delivery well into 2019.”
While the market reaction to two blowout quarters has been somewhat inexplicable, analysts have been steadily raising their estimates with 10 upward revisions in the past 30 days, earning CAT a Zacks Rank #1 (Strong Buy). Trading at a forward P/E ratio of less than 12X – considerably lower than the S&P 500 at 18X, Caterpillar is a legitimate value opportunity.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Caterpillar
For Immediate Release
Chicago, IL – August 16, 2018 – Today, Zacks Investment Ideas feature highlights Features: Caterpillar (CAT - Free Report) .
Caterpillar’s On Sale
It’s been a rough year for shares of Caterpillar, which are currently trading 25% below their all-time highs which were reached in January. Despite several consecutive earnings beats and continually improving guidance, investors seem to be focusing on the negative effects of the trade war, with tariffs on both sides raising both the costs of raw materials used by Caterpillar and the net cost of their finished goods sold in overseas markets.
Actual results at Caterpillar could hardly be better. After reporting a record first quarter, CAT improved on those results in Q2 and significantly raised guidance for the second time in a row. Expected to earn $2.66/share, the company posted a net of $2.97/share on $14B in revenue. Those numbers represent gains of 24% in sales and almost 100% in earnings compared to the second quarter of 2017.
In addition to top and bottom line beats, CAT reported an increase in operating profit – from $1.2B in 2107 to $2.2B, a favorable impact from currency transactions and a lower effective tax rate. Increased operating cash flows allowed the company to raise the quarterly dividend 10% to $0.86/share. Even after accounting for an expected $100-200 million dollar impact from tariffs and higher materials and freight costs, CAT raised full-year earnings guidance for the second quarter in a row to a range of $10.50-$11.50/share. Guidance had previously been $9.75 - $10.75/share.
The company expects to offset these higher costs “through announced mid-year price increases and using the Operating & Execution Model to further drive operational excellence and structural cost discipline.”
In addition to the 2.5% dividend yield, CAT is aggressively returning cash flow to shareholders though the remainder of a previously announced share repurchase program which has $4.2B remaining in 2018, and an additional $10B buyback which was recently authorized by the board to begin in 2019 with no expiration date.
Though the markets seem to be focusing on a potential slowdown in global growth when it comes to Caterpillar, the company stated that “Most end markets continue to improve, order rates are healthy, and the backlog remained solid in the quarter. For certain applications, particularly in oil and gas mining, the company is seeing strong demand and taking orders for delivery well into 2019.”
While the market reaction to two blowout quarters has been somewhat inexplicable, analysts have been steadily raising their estimates with 10 upward revisions in the past 30 days, earning CAT a Zacks Rank #1 (Strong Buy). Trading at a forward P/E ratio of less than 12X – considerably lower than the S&P 500 at 18X, Caterpillar is a legitimate value opportunity.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.