Caterpillar Beats Q4 View, Backlog Rises to $15.8bn

Caterpillar CEO speaking in front of construction vehicle - photo - January 2018The stock of earth moving equipment manufacturer Caterpillar Inc. (NYSE: CAT) fell $2.31 on Friday to close at $167.06. The stock had recorded a 12-month high of about $173.24 on Thursday, following the announcement of fiscal 2017 fourth-quarter adjusted earnings that crushed analysts’ estimates. The stock had gained almost 20% in the past one month. Therefore, investors had resorted to profit booking. However, we expect the stock to rise in the days ahead due to reasons given below.

The Peoria, Illinois-based company reported 4Q17 revenues of $12.896 billion, up from $9.574 billion in 4Q16, and greater than analysts expectation of $11.98 billion. Higher sales volume from improved end-user demand resulted in an increase in the revenues.

GAAP net loss for the fourth-quarter 2017 widened to $1.299 billion, or $2.18 per share, from $1.171 billion, or $2.0 per share in the year-ago period. Excluding the $2.40 billion charge recorded due to the new tax law passed in December, and restructuring costs, among others, the 4Q17 adjusted earnings increased to $2.16 per share, from $0.83 per share in the prior-year’s corresponding quarter. The Consensus estimate of Thomson Reuters stood at $1.79 per share for the recent quarter.

Segment wise, Construction Industries’ revenue increased 47% y-o-y to $5.26 billion. Resource Industries’ revenue grew 53% to $2.205 billion. The Energy & Transportation segment posted revenue of $4.71 billion, an increase of 22% from last year. The Financial products segment recorded revenue of $783 million, up 6% on y-o-y basis.

The company ended fiscal 2017 with cash and short-term investments of $8.30 billion, an increase from $7.20 billion at the end of fiscal 2016. The debt-to-capital ratio at ME&T was 36.7% as of 2017 end. At the end of the previous fiscal year, the debt-to-capital ratio was 41%.

Caterpillar’s backlog increased to $15.8 billion, from $15.4 billion at the end of third-quarter. Backlog at Resource Industries segment increased considerably where as backlog at Construction Industries segment remained flat. On a y-o-y basis, order backlog increased by $3.7 billion.

Caterpillar also issued an upbeat guidance for fiscal 2018. The company now expects adjusted earnings per share of between $8.25 and $9.25 per share. The FactSet analysts’ had forecast earnings of $8.15 per share.

Based on the impressive results, huge order backlog, and strong outlook, we can expect the stock to continue to consolidate at the current levels and move up higher.

The historical price chart indicates strong support for the stock at 165. The accumulation indicator is rising. Furthermore, the stock is moving along the ascending channel. Therefore, we are expecting the uptrend to continue in the short-term.

Caterpillar - Technical Analysis - 29th January 2018

On the basis of the analysis, we may invest in a call option to gain from the uptrend. Before locking our surplus money in a call option, we would like to make sure that the call option offered by a binary broker is valid for one week. Furthermore, the stock should be trading between $165 and $168 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.