Caterpillar earnings: What to expect from the construction equipment maker

By Tomi Kilgore

Investors seem to have prepped for a disappointing Q3 report, while Wall Street analysts are expecting something bullish

Caterpillar Inc. is scheduled to report third-quarter results on Tuesday, before the opening bell.

Although the maker of construction and mining equipment has done a good job of beating quarterly earnings expectations -- the company has missed just once in the past 13 quarters -- it has also made a habit of disappointing investors.

The stock (CAT) has dropped on the day after earnings 10 times in the past 13 quarters, by an average of 2.8%. But when investors cheer, they cheer loudly, as the stock has rallied an average of 6.9% the three times it has gained, including an 8.9% surge on Aug. 1 after second-quarter results.

Investors appear to be prepped for another disappointment. While the stock bounced 1.9% in afternoon trading on Monday, it had dropped in seven of the previous eight sessions to close Friday at a four-month low. It had tumbled 12.5% over those eight sessions while the Dow Jones Industrial Average DJIA had lost 4.6%.

But Wall Street may have other ideas. Analysts seem to be expecting a second-straight strong report as earnings and revenue estimates -- and analyst price targets -- have moved up significantly in the past few months.

CFRA analyst Steward Glickman went as far as upgrading Caterpillar's stock to buy from hold last week.

While acknowledging that higher interest rate levels could crimp spending, "we like prospects for nonresidential construction in the U.S., helped by renewed Federal spending on infrastructure that is starting to be put to work," Glickman wrote in a note to clients.

J.P. Morgan's Tami Zakaria affirmed her bullish view on Caterpillar's stock last week. She said that while residential construction has moderated, the current housing shortage will likely support demand. And nonresidential construction remains strong, as infrastructure spending is gaining pace.

Zakaria said the key metrics she will be watching for are the book-to-bill ratio and machinery, energy and transportation (EM&T) sales to end users (STU).

"As long as book-to-bill ratio was above 95% in 3Q and STU remains positive, we believe [Caterpillar] sets up well for 2024," Zakaria wrote in a note to clients.

Here are the average third-quarter estimates compiled by FactSet for some of Caterpillar's other closely watched financial metrics, and other items of interest:

Adjusted earnings per share is expected to be $4.80, up from $3.95 a year ago. The EPS consensus has increased from $4.18 at the end of July, which was the day before second-quarter results were released.Revenue is expected to rise 10.5% from a year ago to $16.57 billion, which is up from $16.01 billion at the end of July.Construction Industries revenue is expected to rise 5.2% to $6.60 billion.Energy & Transportation revenue is estimated to grow 5.5% to $6.53 billion.Resource Industries revenue is projected to climb 9.9% to $3.39 billion.Of the 26 analysts surveyed by FactSet, the average stock price target has increased to $288.36 from $254.57 at the end of July. The new target implies about 19% upside from current levels.

-Tomi Kilgore

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10-30-23 1507ET

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