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Caterpillar Q3 Preview: Can Shares Uphold Strength?

The Zacks Industrial Products sector has primarily traded in line with the S&P 500 YTD, down 18%.

A titan in the sector, Caterpillar CAT, is on deck to unveil quarterly results on October 27th before the market open.

Caterpillar is the world’s largest construction-equipment manufacturer. The company designs, develops, engineers, manufactures, markets, and sells machinery, engines, financial products, and insurance to customers.

Currently, the machinery titan carries a Zacks Rank #3 (Hold) paired with an overall VGM Score of a C.

How does everything else stack up? Let’s take a deeper dive and find out.

Share Performance & Valuation

CAT shares have been relatively strong in 2022, down just above 2% and easily outperforming the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Over the last three months, CAT shares have climbed a strong 7%, yet again outpacing the general market by a wide margin.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The relatively strong price action of Caterpillar shares indicates that buyers have defended the stock all year long, undoubtedly a positive in a historically-volatile 2022.

CAT shares don’t appear expensive by any stretch; the company’s 15.3X forward earnings multiple is nicely below its 16.4X five-year median and reflects a 6% discount relative to the Zacks Industrial Products sector.

Further, the machinery titan carries a Style Score of a B for Value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Quarterly Estimates

Analysts have had a bearish stance on the company’s upcoming release, with four negative earnings estimate revisions hitting the tape over the last several months. Still, the Zacks Consensus EPS Estimate of $3.19 suggests Y/Y earnings growth of a rock-solid 20%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Top-line growth is apparent also; the Zacks Consensus Sales Estimate of $14.3 billion indicates an improvement of more than 15% from year-ago quarterly sales of $12.4 billion.

Quarterly Performance & Market Reactions

Caterpillar is on an impressive earnings streak, exceeding the Zacks Consensus EPS Estimate in nine consecutive quarters. Just in its latest print, CAT registered a 6% EPS beat.

Revenue results have also been consistently strong, with the company exceeding sales estimates in seven of its last ten quarters. Below is a chart illustrating the company’s revenue on a quarterly basis.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Further, it’s worth highlighting that shares have moved downward following each of CAT’s last three quarterly prints.

Putting Everything Together

CAT shares have been relatively strong YTD, and over the last three months, they’ve enjoyed a solid run, easily outperforming the S&P 500.

Valuation multiples don’t appear stretched, with the company’s forward earnings multiple sitting nicely below its five-year median and Zacks Industrial Products sector average.

Analysts have been bearish in their earnings outlook, with estimates suggesting solid Y/Y upticks in revenue and earnings.

The company has consistently exceeded quarterly estimates, but the market hasn’t liked what it’s seen from the last three.

Heading into the release, Caterpillar CAT carries a Zacks Rank #3 (Hold) with an Earnings ESP Score of -0.8%.


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