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Caterpillar Seeks Former Attorney General's Help in Probe

Zacks Equity Research

Caterpillar Inc. CAT, which is currently facing scrutiny from federal investigators, has sought the help of former U.S. Attorney General, William P. Barr to assist the company in the investigation. Barr is expected to take a fresh look at Caterpillar's disputes with the government, collect all necessary facts, and help resolve these matters.

During 1991 to 1993, Barr had served as the 77th Attorney General of the United States during the administration of President George H.W. Bush. Prior to that, he had served as Deputy Attorney General and as Assistant Attorney General in charge of the Office of Legal Counsel at the United States Department of Justice.

In fact, following his stint with the Department of Justice, Barr had also spent over 14 years in senior corporate positions. Finally, at the end of 2008, he retired from Verizon Communications Inc. VZ, having served as Executive Vice President and General Counsel of its predecessor company, GTE Corporation.

It is a well-known fact that on Mar 2 law enforcement officials raided Caterpillar’s corporate headquarters as well its two facilities in Peoria, IL to execute a search and seizure warrant. And the agencies involved in the search were the Internal Revenue Service's (IRS) criminal investigation unit, the U.S. Department of Commerce Office of Export Enforcement and the Federal Deposit Insurance Corp.'s Office of Inspector General.

Soon after this incident, Caterpillar issued a statement announcing the search was regarding, export filings that relate to business with its Swiss subsidiary, CSARL, among others. The matter first came to light in the company’s Form 10-K filed on Feb 17, 2015 and was updated in its recent 10-K.

Notably, two years ago, the IRS had notified the company that it owed over $2 billion in taxes for the years 2010 to 2012 by shifting profits to the affiliate in Switzerland. But Caterpillar remains firm on the ground that it had not broken any federal tax laws.

Caterpillar, Inc. Price

Caterpillar, Inc. Price | Caterpillar, Inc. Quote

In fact, this investigation has dealt a blow to the mining and equipment behemoth, which had been grappling with weak mining demand. If the allegations against Caterpillar are subsequently proved to be true, this could have a substantial impact on its reputation.

Additionally, it could also be restricted from bidding for federal contracts, which would be a big blow, given that Caterpillar is touted to be one of the biggest beneficiaries from Trump’s infrastructure plan. Such consequences are likely to impair the company’s efforts to regain footing in the construction and mining markets, in the future.

In the past one year, the Caterpillar stock has underperformed the Zacks categorized Machinery – Construction/Mining industry. The company has delivered a return of 27.6%, while the industry gained 29.7%.

Caterpillar currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space include ACCO Brands Corporation ACCO and Parker-Hannifin Corporation PH. Both of the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While, ACCO Brands generated a positive average earnings surprise of 24.74% in the trailing four quarters, Parker-Hannifin has delivered an average positive earnings surprise of 12.44%.

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