Caterpillar Earnings Preview: Third Quarter 2009

Caterpillar [[CAT]] is scheduled to report their third quarter 2009 results before the market opens on Tuesday, October 20. Based on our analysis, we at are expecting CAT to report better than expected quarterly results that will exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $7.85 billion and EPS of $.11. This would represent a 40% decline in revenues from last year’s $12.98 billion in the same period. The current analyst consensus estimates calls for revenues of $7.48 billion and EPS of $.07. On July 21, the company updated their full year 2009 revenue guidance to $32 – $36 billion and $1.15 – $2.25 EPS.


Despite the difficult economic conditions, Caterpillar has managed to deliver strong earnings performances that exceeded the Street’s expectations the past two quarters. We anticipated another quarter of ugly y/y sales declines, but better than expected earnings results largely driven by cost-cutting initiatives.


While the global economic picture appears to be brightening, the construction sectors still remain quite depressed. There is also concern that CAT could begin seeing increased competition in China which is the one region of the world that is experiencing growth right now.


Share Performance

Since the beginning of the year, Caterpillar’s shares have increased 23%. In 2008, CAT’s shares fell nearly 37% and performed relatively inline with the 34% decline in the Dow Jones industrial average.



Shares are now trading at 27x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. Caterpillar’s stock has continued to climb over the last few months on reports of the improving global economy.


Recommendation: Hold with a $45 price target


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