Caterpillar Inc. (CAT), the world's leading manufacturer of construction and mining equipment, seems to be in the doldrums at the moment. The company has been ravaged by a weak manufacturing sector, the coronavirus crisis and the oil price rout. Its global retail sales has been declining for six straight months. Notably, global retail sales plunged 23% in the three-month period ended May 2020 — the worst performance so far in 2020. Notably, these levels were last witnessed in February 2016. Caterpillar’s first-quarter 2020 results also failed to impress investors as adjusted earnings per share declined 46% year over year on account of lower demand across all segments and geographies.
Caterpillar’s shares slumped 16.3% year to date compared with industry’s decline of 17.5%.
The U.S.-China trade tensions and waning global demand has taken its toll on the U.S manufacturing sector, and the coronavirus pandemic has dealt a further blow. It goes without saying that Caterpillar hasn’t been an exception to this trend. Per the Federal Reserve, industrial production slumped 11.2% in April — the worst drop in the 101-year history of the index. This decline can be attributed to factory closures and suspension of operations due the pandemic. Per the Institute for Supply Management, the U.S Purchasing Managers’ Index (PMI) came in at 41.5% for April — the lowest since April 2009 when it registered 39.9%. In May, the PMI came in at 43.1%. Notably, a reading below 50 denotes contraction.
Caterpillar has withdrawn 2020 guidance due to the uncertainty related to the impact of the pandemic. Instead the company cautioned that its impact is likely to be more pronounced on the second-quarter results and linger until global economic conditions improve. Mining customers will remain disciplined with their capital expenditures this year due to low commodity prices, which in turn will impact Caterpillar’s sales. In Energy & Transportation segment, demand will be particularly weak in the oil and gas sector on account of low oil prices and sluggish capital spending at customers end.
Downward Estimate Revisions
Reflecting the abovementioned headwinds, he Zacks Consensus Estimate for Caterpillar’s 2020 earnings has been revised downward by 28% over the last 60 days. It is currently pegged at $4.94, suggesting a decline of 55% from the prior year. Caterpillar has a trailing four-quarter negative earnings surprise of 3.27%, on average.
Moreover, the stock carries a Zacks Rank #5 (Strong Sell).
Though Caterpillar’s prospects may not appear impressive at the moment, there are some Industrial Products stocks that hold promise despite the overall weakness in the sector. We have picked four industrial stocks that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy), have positive growth estimates and delivered year-to-date positive returns. You can see the complete list of today’s Zacks #1 Rank stocks here.
4 Promising Industrial Stocks
Axon Enterprise, Inc. AAXN: Based in Scottsdale, AZ, this company develops, manufactures, and sells conducted energy weapons (CEWs) worldwide. It has a long-term estimated earnings growth rate of 15%. It has a Zacks Rank #2. The Zacks Consensus Estimate for 2020 earnings suggests growth of 14.2% from the year-ago quarter. The company has a trailing four-quarter positive earnings surprise of 30.6%, on average. The company’s shares have appreciated 37% so far this year.
Broadwind, Inc. BWEN: Cicero, IL-based Broadwind provides products to the energy, mining, and infrastructure sector customers primarily in the United States. The Zacks Ranked #2 stock has gained 69% year to date. The Zacks Consensus Estimate for 2020 earnings indicates year-over-year growth of 174%. The company has a trailing four-quarter positive earnings surprise of 50%, on average.
SiteOne Landscape Supply, Inc. SITE: This Roswell, GA.-based company engages in the wholesale distribution of landscape supplies in the United States and Canada. It sports a Zacks Rank #1. The Zacks Consensus Estimate for 2020 earnings has been revised upward by 78% over the past 30 days. The consensus mark indicates an improvement of 15.4% from the year-ago quarter. The company has a trailing four-quarter positive earnings surprise of 106.7%, on average. The company’s shares have gained 21% year to date.
TPI Composites, Inc. TPIC: This Scottsdale, AZ -based company manufactures and sells composite wind blades, and related precision molding and assembly systems to original equipment manufacturers. It currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2020 earnings has moved up 10% in the past 30 days. The figure indicates year-over-year growth of 17.9%. The company’s share price has advanced 18% so far this year.
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