On May 28, 2013, Zacks Investment Research downgraded Caterpillar Inc. (CAT) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Caterpillar witnessed sharp downward estimate revisions after reporting disappointing first-quarter 2012 results on Apr 22. Revenues of the construction and mining equipment behemoth dipped 17% year over year to $13.2 billion and earnings per share slumped 45% to $1.31, primarily due to reduced mining demand and decline in inventory.
Citing weak demand for its mining equipment, Caterpillar has trimmed its sales outlook to a range of $57 to $61 billion from the previous range of $60 to $68 billion. Caterpillar now expects to earn $7.00 per share in 2013, down from the earlier projection of earnings between $7.00 and $9.00 per share. The Zacks Consensus Estimate currently stands at $6.90, reflecting an annual 20% decline.
On May 20, Caterpillar reported worldwide sales decline of 9% for the three months ending Apr 2013, the fifth consecutive month of declining sales. Caterpillar sales started its downhill journey in Dec 2012, hurt by tougher year-on-year comparisons and rising inventories of unsold equipment.
Estimate revision trend reflects overly bearish sentiment toward Caterpillar’s earnings for the ongoing and next year. For 2013, all of the 15 estimates were revised downward over the last 60 days, lowering the Zacks Consensus Estimate by 14.8% to $6.90 per share. For 2014, 12 of the 13 estimates were revised downward over the same timeframe, lowering the Zacks Consensus Estimate by 14.8% to $8.10 per share.
Other Stocks to Consider
Not all stocks in the industrial products sector are performing as poorly as Caterpillar. We recommend H&E Equipment Services Inc. (HEES), Alamo Group, Inc. (ALG) and CNH Global NV (CNH), all carrying Zacks Rank #2 (Buy).
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