All posts from Zacks
Zacks in Our Research. Your Success.,

3 Reasons To Be Bullish On Caterpillar (CAT) Ahead Of Earnings

Caterpillar, Inc. CAT, one of the world’s largest manufacturers of construction and mining equipment, is expected to release its Q2 earnings report on July 25.

Despite beating its earnings projections in each of its past nine operational quarters, Caterpillar is best known as a stable stock with limited growth prospects.

Nevertheless, the stock holds an Earnings ESP of 4.92%, and along with its Zacks Rank #2 (Buy), this means that Caterpillar is more likely to beat its quarterly earnings estimates once again.

If that metric isn’t enough, here 3 other reasons one should be bullish on Caterpillar ahead of its earnings report:

1.       Political Climate & Industry Strength

Caterpillar’s share price has continued to benefit since the victory of Donald Trump as investors believe Trump’s plans for spending on infrastructure will come to fruition and boost revenues. The idea of massive infrastructure spending is great news for Caterpillar, which is expected to play a large role in the national infrastructure plan.

Caterpillar’s stock has outperformed the Zacks industry with a return of 17% compared to the industry average of 15.2%. Additionally, Caterpillar’s Construction/Mining category currently ranks in the top 23% of the Zacks Industry Rank.

Sales in the construction industry rose to 11% in May. There have been signals of robust conditions for the construction industry in the near future. As per Dodge Data & Analytics, total U.S. construction for 2017 is expected to increase 5% to $713 billion. Basically, the construction industry is beginning a large phase of its expansion while construction spending is anticipated to witness notable gains through 2017.

2.       Strong Style Scores

Caterpillar holds an “A” grade for Momentum and a “B” grade for Growth. In essence, Caterpillar’s share price has continued to increase while the company has exhibited ample growth opportunities and initiatives.

In fact, Caterpillar’s worst Style Score grade is its “C” for Value. These solid grades have helped the stock earn a “B” grade in the overall VGM category, which implies that it is fundamentally sound and could be of interest for different trend-focused investors.

For example, the stock continues to feature impressive growth and value metrics in comparison to its industry competitors. Caterpillar holds a projected EPS growth of 24.53% and RoE of 15.14%, which compare favorably to the industry averages of 20.19% and 8.46%, respectively. Further, Caterpillar boasts an impressive cash flow per share of $9.61, which demolishes the industry averages of $2.99.

3.       Strong Growth in Key Markets

Internationally, Caterpillar has continued to grow, specifically in its resource and construction industries. In Q2 2016, Caterpillar reported $892 million in the Asia/Pacific construction industry. Our exclusive consensus estimates call for revenues in the Asia/Pacific region to hit $1.05 billion this quarter, which would be an impressive 17.71% year-over-year increase in sales.

Further, Caterpillar has growth within the resource industry in Latin America and EAME. In Q2 2016, Caterpillar posted $258 million in sales for its resource industry in Latin America, while it reported $317 million in sales for the resource industry within EAME. However, our consensus estimate for resource industry sales sits at $277 million in Latin America and $424 million for EAME. Basically, Caterpillar’s sales in the resource industry are expected to grow by 7.36% in Latin America and by a whopping 33.76% in EAME.

These important stock drivers are from our exclusive non-financial metrics consensus estimate file. These estimates are updated daily and are based on the independent research of expert stock analysts. Learn more here>>>

More Stock News: 8 Companies Verge on Apple-Like Run

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade, which could in turn save $200 billion in U.S. healthcare costs.

A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>



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
Caterpillar, Inc. (CAT): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research