On Aug 26, 2014, we issued an updated research report on Caterpillar Inc. (CAT), the mining and equipment behemoth.
Caterpillar reported a 17% increase in its second-quarter 2014 earnings to $1.69 per share. The improvement was primarily attributed to its cost cutting efforts and continued deployment of operational improvement in the Construction segment, along with record profit from Energy & Transportation that helped mitigate the effect of lower mining-related sales on its profits.
Caterpillar revised its 2014 revenue guidance to a range of $54 to $56 billion, from its earlier projected range of $56 billion, up or down 5% which translated to a range of $53.2 to $58.8 billion. The trimmed guidance reflects lower sales of construction equipment in the developing countries. Sales in Resource Industries will continue to be affected as mining companies keep on reducing their capital expenditures in 2014. Nevertheless, the company has increased its earnings per share guidance to $6.20, up from the prior forecast of $6.10, taking into account the upbeat second-quarter results.
Caterpillar’s backlog at the end of the second quarter was $19.3 billion, up 1% year over year, driven by the improvement in Energy & Transportation. This marks a reversal from the decline in backlog reported in 2013.
Caterpillar intends to purchase approximately $2.5 billion worth of its common stock under an accelerated stock repurchase transaction in the third quarter. This will be accretive to earnings and provide support to the stock.
The Architecture Billings Index, which is considered a leading indicator of U.S. non-residential construction, rose to 55.8 in July, up from 53.5 in June. This marked a seven-year high, indicating an imminent recovery of the U.S. non-residential construction sector. The improvement in the construction sector and macroeconomic stabilization in Europe will help compensate the impact of the weak mining sector to some extent.
Caterpillar currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks worth considering in this sector include DXP Enterprises, Inc. (DXPE), Middleby Corp. (MIDD) and IDEX Corporation (IEX). All of these stocks carry a Zacks Rank #2 (Buy).