Caterpillar Inc. CAT, the world's leading manufacturer of construction and mining equipment, seems to be in the doldrums at the moment. Notably, the company’s fourth-quarter top line failed to impress investors. Sales declined across the board, thanks to weak demand. Dealers continued to lower their inventory, which weighed on the company’s performance. Nevertheless, the company managed to deliver year-over-year improvement of 3% in earnings driven by strong cost control measures.
Caterpillar’s global retail sales recorded a decline of 7% in the three-month period ended January 2020, following a decline of 5% in December. The decrease in sales in December had put an abrupt end to the company’s sales growth for 33 consecutive months. The company had last witnessed negative sales growth in February 2017.
For 2020, Caterpillar expects adjusted earnings per share between $8.50 and $10.00. The mid-point of the guidance indicates a decline of 16% from 2019. End user demand is expected to decline by about 4-9% compared with 2019. Dealers are anticipated to continue reducing inventories, owing to the ongoing global economic uncertainty. Moreover, mining customers remained disciplined with their capital expenditures due to economic uncertainty that will continue to weigh on the Resource Industries segment.
Downward Estimate Revisions
In the last 30 days, 10 out of 11 analysts have revised their earnings estimates downward for the current year. The consensus estimate has declined 11% over the last 30 days. Further, Caterpillar has a trailing four-quarter negative surprise of 0.12%, on average.
The Zacks Consensus Estimate for Caterpillar’s earnings in fiscal 2020 is pegged at $9.41, suggesting a decline of 15% from the prior year. The estimate for revenues is at $49.4 billion, indicating a fall of 8% from the previous year.
Over the past year, Caterpillar shares fell 10.3% compared with the industrial products sector’s decline of 0.3%. Meanwhile, the S&P500 rallied 10.3%.
Moreover, the stock carries a Zacks Rank #4 (Sell).
The U.S.-China trade tensions and waning global demand has taken its toll on the U.S manufacturing sector, which in turn is impacting Caterpillar’s performance. Industrial production declined 0.3% in January following a dip of 0.5% in fourth-quarter 2019. Further, the U.S Purchasing Managers’ Index (PMI) as per the Institute for Supply Management remained below 50 (indicating contraction) for five months in a row till December. Even though the index has climbed to 50.9 in January, it remains to be seen whether this recovery will stay.
Further, the coronavirus outbreak in China remains an overhang on the sector and the equity markets. The uncertainty regarding the situation, primarily the scale and magnitude of its impact, is the chief reason behind the concern. Factory closures in China, reduced demand for goods and services, and disruption in global supply chains, among others, are expected to weigh on the global economy. Most of the companies have updated their first-quarter and 2020 outlook.
5 Industrial Stocks That are Much Better Off
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.
Our proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five stocks that fit the bill.
Northwest Pipe Company NWPX: This Vancouver, WA-based company manufactures engineered welded steel pipe water systems in North America. It has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for 2020 has gone up 5% over the past 30 days, indicating year-over-year growth of 19.5%. The company has a trailing four-quarter positive earnings surprise of 20.1%, on average. The company’s shares have gained 36.5% in the past year.
Tennant Company TNC: Based in Minneapolis, MN, this company designs, manufactures, and markets floor cleaning equipment worldwide. It has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for 2020 earnings has moved up 37% in the past 30 days, suggesting year-over-year growth of 40.7%. The company has a trailing four-quarter positive earnings surprise of 26.60%, on average. Its shares have gone up 21% in a year’s time.
Dover Corporation DOV: Downers Grove, IL-based Dover provides equipment and components, consumable supplies, aftermarket parts, software and digital solutions, and support services globally. The Zacks Ranked #2 stock has gained 16% in a year’s time. It has a VGM Score of B. The Zacks Consensus Estimate for 2020 earnings indicates year-over-year growth of 6.8%. The estimates have moved up 1% over the past 30 days. The company has a trailing four-quarter positive earnings surprise of 5.36%, on average.
Hubbell Inc HUBB: This Shelton, CT.-based company designs, manufactures, and sells electrical and electronic products in the United States and internationally. It currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for 2020 earnings has moved up 1% in the past 30 days, indicating year-over-year growth of 6.7%. It has a trailing four-quarter positive earnings surprise of 3.9%, on average. The company has a long-term estimated earnings growth of 8.8%. Its shares have gone up 12% in a year’s time.
Xerox Corporation XRX: Based in Norwalk, CT, the company designs, develops, and sells document management systems and solutions worldwide. The Zacks Consensus Estimate for 2020 earnings has gone up 4% over the past 30 days, suggesting year-over-year growth of 3.7%. The company has a trailing four-quarter positive earnings surprise of 16.2%, on average. The stock has a Zacks Rank#1 and a VGM Score of A. The company’s share price has appreciated 8% over the past year.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
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Caterpillar Inc. (CAT) : Free Stock Analysis Report
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