Caterpillar Earnings Preview: Second Quarter 2009

Caterpillar [[CAT]] is scheduled to report their second quarter 2009 results before the market opens on Tuesday, July 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 $8.75 billion and EPS of $.19. This would represent a 36% decline in revenues from last year’s $13.62 billion in the same period. The current analyst consensus estimates calls for revenues of $8.89 billion and EPS of $.22. On April 21, the company provided full year 2009 revenue guidance of $31.5 – $38.5 billion and implied $1.25 EPS at the midpoint of the revenue range excluding redundancy costs.


Last quarter, Caterpillar slashed their 2009 EPS guidance in half due to the weak economy. While there have been a few positive signs of economic recovery lately, we have yet to see any real improvements in the construction sectors. Despite aggressive cost cutting measures by the company we anticipate the weak economic environment to weigh on results once again.


Looking ahead, Caterpillar investors are likely to become frustrated as the up cycle that many are optimistically predicting is pushed further out into the future. In addition, CAT is likely to begin experiencing greater competition in the one region of the world that is experiencing growth right now – China.


Share Performance

Since the beginning of the year, Caterpillar’s shares are down over 31%. In 2008, CAT’s shares fell 38% as the stock performed relatively inline with the 34% decline in the Dow Jones industrial average.



Shares are now trading at 20x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. Investors appear to be overly bullish on CAT, as the stock currently trades at the same price now as before their last earnings results when the company slashed 2009 earnings guidance by 50%.


Recommendation: Sell with a $25 price target.


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