Caterpillar (CAT – Free Report) is among the stocks most viewed by Zacks.com visitors recently. So, it may be a good concept to examine a few of the aspects that may impact the near-term efficiency of the stock.
Over the previous month, shares of this building and construction equipment business have actually returned +12.2%, compared to the Zacks S&P 500 composite’s +4.6% modification. During this duration, the Zacks Manufacturing – Construction and Mining market, which Caterpillar falls in, has actually acquired 10.4%. The crucial concern now is: What could be the stock’s future instructions?
While media releases or reports about a significant modification in a business’s business potential customers typically make its stock ‘trending’ and result in an instant cost modification, there are constantly some essential truths that ultimately control the buy-and-hold decision-making.
Earnings Estimate Revisions
Here at Zacks, we focus on assessing the modification in the forecast of a business’s future profits over anything else. That’s due to the fact that our company believe today worth of its future stream of profits is what identifies the reasonable worth for its stock.
Our analysis is basically based upon how sell-side experts covering the stock are modifying their profits quotes to take the latest business patterns into account. When profits quotes for a business increase, the reasonable worth for its stock increases too. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in profits estimate revisions and short-term stock price movements.
Caterpillar is expected to post earnings of $4.51 per share for the current quarter, representing a year-over-year change of +41.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.3%.
The consensus earnings estimate of $17.64 for the current fiscal year indicates a year-over-year change of +27.5%. This estimate has changed +0.7% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $18.12 indicates a change of +2.7% from what Caterpillar is expected to report a year ago. Over the past month, the estimate has changed +1%.
With an impressive externally audited track record, our proprietary stock rating tool — the Zacks Rank — is a more conclusive indicator of a stock’s near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings quotes, has resulted in a Zacks Rank #1 (Strong Buy) for Caterpillar.
The chart below shows the evolution of the company’s forward 12-month consensus EPS estimate:
12 Month EPS
Projected Revenue Growth
While earnings growth is arguably the most superior indicator of a business’s financial health, nothing happens as such if a business isn’t able to grow its revenues. After all, it’s nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it’s important to know a company’s potential revenue growth.
In the case of Caterpillar, the consensus sales estimate of $16.38 billion for the current quarter points to a year-over-year change of +15%. The $65.11 billion and $65.14 billion estimates for the current and next fiscal years indicate changes of +9.6% and +0.1%, respectively.
Last Reported Results and Surprise History
Caterpillar reported revenues of $15.86 billion in the last reported quarter, representing a year-over-year change of +16.7%. EPS of $4.91 for the same period compares with $2.88 a year ago.
Compared to the Zacks Consensus Estimate of $15.24 billion, the reported revenues represent a surprise of +4.09%. The EPS surprise was +29.55%.
Over the last four quarters, Caterpillar surpassed consensus EPS estimates three times. The company topped consensus revenue estimates three times over this period.
Valuation
Without considering a stock’s valuation, no investment decision can be efficient. In predicting a stock’s future price performance, it’s crucial to determine whether its current price correctly reflects the intrinsic worth of the underlying business and the company’s growth prospects.
Comparing the current worth of a company’s valuation multiples, such as its cost-to-profits (P/E), cost-to-sales (P/S), and cost-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the business relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional assessment metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Caterpillar is graded C on this front, indicating that it is trading at par with its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Conclusion
The facts discussed here and much other information on Zacks.com might help figure out whether it’s beneficial focusing on the marketplace buzz about Caterpillar. However, its Zacks Rank #1 does recommend that it might surpass the more comprehensive market in the near term.
