Time New York: Tue 21 May 11:50 am  |  Save 15% on H&R Block Online


7 Reasons to Add Caterpillar (CAT) to Your Portfolio Now


Caterpillar Inc. CAT has delivered better-than-expected third-quarter performance, attributable to surprisingly strong demand for its construction equipment in North America, robust sales in China, improvement in other markets as well as disciplined cost-control efforts. The mining and construction equipment behemoth also hiked 2017 guidance, citing strength in a number of industries and regions.

Share price of this Zacks Rank #1 (Strong Buy) stock has been rising of late. If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry he momentum ahead. The stock has an estimated long-term earnings growth rate of 10.3%.

Stellar Performance in Q3

Caterpillar’s adjusted earnings per share surged 129% year over year to $1.95 in the quarter while revenues rose 25% to $11.4 billion. Both beat the respective Zacks Consensus Estimates. Also, at the end of quarter, Caterpillar’s backlog was at $15.8 billion, a year-over year improvement of $3.8 billion.

Hiked Guidance

Owing to encouraging order rates, upbeat economic indicators and an increasing backlog, Caterpillar hiked revenue guidance to the range of $44 billion from the prior range of $42-$44 billion. The company now projects earnings per share of $6.25 compared with previous guidance of $5.00 per share. The mid-point of the revenues and earnings per share guidance reflect year-over-year growth of 14% and 83%, respectively.

The implied guidance for the fourth quarter is revenues of about $11.4 billion and adjusted profit per share of $1.53. The guidance reflects year-over-year growth of 19% and 83%, respectively.

Ahead of the Industry

The company surged 45.9% year to date, higher than the S&P 500’s gain of 14.2% as well the broader industry’s increase of 44.3%.

We note that the industry is also favorably placed as it occupies a space in the top 7% of the Zacks classified industries (18 out of the 256).

Estimates Northbound

Estimates for Caterpillar have moved up in the past 30 days, reflecting the optimistic outlook of analysts. The earnings estimate for fiscal 2017 has surged 22% while that of fiscal 2018 has moved up 13%.

The Zacks Consensus Estimate for revenues is at $44.04 billion for fiscal 2017, displaying 14.3% year-over-year growth. The revenue estimate for fiscal 2018 is at $47.92 billion, projecting a 8.81% annual growth.

For fiscal 2017, the Zacks Consensus Estimate for earnings is pegged at $6.40, depicting a year-over-year growth of 87.02% while the estimate for fiscal 2018 of $7.63 displays year-over-year growth of 19.22%.

Positive Earnings Surprise History

Caterpillar has outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 53.06%.

Growth Drivers

Caterpillar’s Construction Industries segment is benefiting from strong order activity across all regions and favorable price realization. End-user demand remains robust in North America, driven by an uptick in pipeline construction and improved residential and non-residential construction. In China, the construction industry is improving due to government spending. In 2017, the 10-ton-and-above excavator industry in China is anticipated to more than double from last year.

Resource Industries will continue to gain on the back of higher aftermarket parts sales. Energy & Transportation will be buoyed by improved sale of engines into industrial applications into industrial applications, strength in onshore North America oil and gas and transportation. Further, ongoing efforts to reduce costs will help boost margins.

Caterpillar continues to focus on customers and on the future by continuing to invest in digital capabilities, connecting assets and job sites along with developing the next generation of more productive and efficient products.

Stock Seems Undervalued

Caterpillar has a trailing 12-month price earnings (P/E) ratio of 24.39 while the industry’s average trailing 12-month P/E ratio is 25.62. Based on this ratio, the stock seems undervalued.

Other Stocks to Consider

Some other top-ranked stocks in the sector include, Lakeland Industries, Inc. LAKE, Terex Corporation TEX and H&E Equipment Services, Inc. HEES . All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has expected long-term growth rate of 10.00%.

Terex has expected long-term growth rate of 11.25%.

H&E Equipment Services has expected long-term growth rate of 15.55%.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research
<-- You can share this post with your network,
or give us your opinion and leave a comment.
Be sure to check our RSS feeds for updates.