Caterpillar Earnings Preview: First Quarter 2009

Caterpillar [[CAT]] is scheduled to report first quarter 2009 results before the market opens on Tuesday, April 21. Based on our analysis, we at are expecting CAT to report disappointing results that fail to meet Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $8.42 billion and EPS of ($.03). This would represent a 29% decline in revenues from last year’s $11.80 billion in the same period. The current analyst consensus estimates calls for revenues of $8.63 billion and $.09 EPS. On January 26, the company provided full year 2009 revenue guidance of $36 – 44 billion and implied $2.50 EPS at the midpoint of the revenue range.


We anticipate that Caterpillar will post its first quarterly loss since 1992. The company has implemented cost cutting measures including 20,000 layoffs, but demand continues to fall in the face of tough economic headwinds. Wall Street has already discarded the company’s 2009 EPS guidance of $2.50 and currently only expects the company to earn $1.96 per share this year.


While the company recently announced that they were maintaining their high dividend yield, we would expect the company to consider significantly reducing their dividend payment in July. A 50% cut to the current dividend payment would provide over $500 million in annual savings, while still providing investors with an acceptable 2.5% dividend yield.


Share Performance

Caterpillar’s shares are down almost 26% since the beginning of the year. In 2008, CAT’s shares fell over 38% which was basically inline with the 34% drop in the Dow Jones index.



Shares are now trading at 16x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. While Caterpillar has participated in the recent market rally, we would expect their shares to fall following their quarterly earnings announcement and see few growth catalysts in the coming months.


Recommendation: Sell with a $25 price target.


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