[This bullish piece from Barron’s on the 4Q11 results is reasonable as far as it goes; however, it does not address the inherently cyclical nature of CAT’s business, which implies that one cannot merely extrapolate the current bull run to infinity. CAT is obviously putting up some great numbers, but among heavy-machinery companies I prefer DE as a core LT holding. Both are major beneficiaries of The Global Demographic Tailwind, but people have to eat regardless of the business cycle (advantage: DE) and there are fewer serious players in ag equipment than there are in construction and mining machinery (advantage again to DE). One can own both stocks, of course, but my preference for DE is pretty strong. If anyone here has a contrary view, please post!]
Caterpillar, the heavy-equipment maker and economic bellwether, is bulldozing ahead on a strong fourth-quarter report and upbeat 2012 guidance.
Caterpillar (ticker: CAT) reported earnings of $1.55 billion, or $2.32 a share, up from $1.47 a share in the year-ago period. Revenue spiked 35% to $17.24 billion.
Both top- and bottom-line results trounced consensus estimates, which called for earnings per share of $1.73 on revenue of $16.05 billion.
The quarter was a solid one, with all three of its major segments--Construction Industries, Resource Industries, and Power Systems—turning in earnings well above expectations on double-digit volume increases, and corporate operating margins
"The company saw substantial pickups in all facets of its business," writes Morningstar analyst Adam Fleck in a report.
Fleck is also encouraged that Cat Financial, the company's lending arm, saw record-low credit losses in China, improving metrics in Europe, and overall [past-due payments] of 2.89%, down from 3.54% in the prior quarter.
"Given Cat's investment-grade credit rating and resulting low borrowing costs, we continue to believe Cat Financial offers a source of competitive advantage for the company," Fleck writes.
Caterpillar also sounded an optimistic note about 2012, calling for earnings around $9.25 per share on sales of $68 billion to $72 billion, ahead of the $9.06 EPS and $67.3 billion in revenue analysts were forecasting.
Management said it was more optimistic than last quarter that the global economy will sidestep a recession and sees talk of a serious slowdown in Europe subsiding by midyear.
"Caterpillar's macro view continues to be solidly ahead of consensus, with improvement noted over the fourth quarter, as central banks continue to ease economic policies into 2012," notes Robert W. Baird analyst Robert McCarthy, who sees the stock as fairly valued at $135.
Caterpillar is poised to take advantage of macro trends in a meaningful way, given its position as global leader in heavy equipment. While its dominance is clear in North America, which has seen improving construction statistics, it is also well placed in emerging markets that are engaged in numerous large-scale projects.
"Aided by global government stimulus packages, Caterpillar is in the midst of a robust business recovery, and we see growth going on for an extended period," explains Standard & Poor's Capital IQ analyst Michael Jaffe, in valuing the shares at $129.
This column has been bullish on Caterpillar in the past, most recently agreeing with an upgrade of the shares from Goldman Sachs. The shares have charged ahead more than 30% since that call, through Wednesday's close.
Trading just over 12 times forward earnings, the shares don't seem overly pricey either, particularly so when one considers the 1.7% dividend yield, 35% return on equity and a long-term annualized earnings growth rate approaching 25%.
All of which means Caterpillar should have no problem building on today's success.‹
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