Shares of Caterpillar (CAT – Free Caterpillar Stock Report) rose sharply to a 52-week high after the manufacturer's third-quarter results beat Wall Street expectations. Sales of $11.41 billion eclipsed our $10.75 billion estimate and the year-earlier figure of $9.16 billion, sparked by improvement in the Construction Industries division. Similarly, the Resource Industries unit benefited from better end-user demand for aftermarket parts and the favorable impact of increased prices. Lastly, the Energy & Transportation segment took advantage of greater demand for parts and services.
Progress in various end markets, when combined with controlled costs, helped Caterpillar generate higher profit margins and income. Excluding restructuring costs, share profit of $1.95 surged past our estimate of $1.11, as well as the year-earlier figure of $0.85.
Caterpillar continues to see strength in a number of industries and regions, including construction in China, onshore oil and gas in North America, and increased capital investments by mining customers. In order to satisfy customer demand for these markets, the company is working to boost production levels. As noted, due to healthier demand for offerings across a multitude of end markets and disciplined cost controls, the company has raised its 2017 outlook. The world's biggest manufacturer of earth-moving equipment expects sales of about $44 billion, up from its previous forecast of $42 billion-$44 billion. It also is looking for share earnings of $6.25, up from $5.00. This excludes management's estimate of about $1.3 billion in restructuring costs. Consequently, we have raised our full-year 2017 top- and bottom-line outlooks to $44 billion and $6.25 a share, respectively.
Plans by President Donald J. Trump to spend significant amounts of capital on infrastructure projects have also helped buoy the equities of industrial companies. This, together with prospects for tax reform, bears watching. Altogether, Caterpillar shares have risen more than 40% this year, while the Standard & Poor's 500 Index has gained 15% over the same time frame.
From an investment perspective, the near-term road looks smooth for this economically sensitive heavy equipment maker. With global economic conditions healthy, demand for Caterpillar is apt to continue in the coming quarters. Due to improvement in Caterpillar's end markets, investors may want to take a look at this blue-chip company. Additionally, a well-covered dividend payout, and above-average yield make this holding appealing for income-oriented investors.
About The Company: Caterpillar Incorporated is the world’s largest producer of earth-moving equipment. Major global markets include road building, mining, logging, agriculture, petroleum, and general construction. Products include tractors, scrapers, graders, compactors, loaders, off-highway truck engines, and pipelayers. Also makes diesel & turbine engines and lift trucks.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
