Caterpillar Upgraded to Outperform - Analyst Blog
12 Mai 2011 - 1:45PM
Zacks
Caterpillar Inc.’s
(CAT) first-quarter EPS jumped to an all-time quarterly high of
$1.84 from 36 cents in the year-ago quarter, driven by higher sales
volume. Revenues surged 57% year over year to $12.95 billion on
continued economic recovery and growth in machine demand. Stellar
first quarter numbers and increased guidance, given higher sales
volume and record order backlog, prompted us to upgrade our
recommendation for Caterpillar from Neutral to Outperform. We
currently have a Zacks #1 Rank (short-term Strong Buy
recommendation) on the stock.
For 2011, Caterpillar expects
revenues in the range of $52 billion to $54 billion and EPS of
$6.25 to $6.75, the highest annual profit in the company’s history.
However, the outlook does not include the acquisition of MWM
Holding GmbH (MWM) or Bucyrus International Inc.
(BUCY) as they have not yet closed. The acquisitions are expected
to close by mid 2011. We expect a revision to guidance and our
estimates once these deals close.
We expect Caterpillar to maintain
its revenue growth trajectory aided by growth in emerging markets
as well as construction and mining in developing countries.
Increased domestic and international infrastructure spending,
improved economic conditions and benefits from the yet-to-be closed
acquisitions will support revenues over the next several years.
The merger with Bucyrus will
position Caterpillar as the leading global mining original
equipment manufacturer. The combined product portfolio will dwarf
Joy Global Inc. (JOYG), the only U.S.-based
manufacturer of surface and underground mining equipment.
Caterpillar expects the deal to be accretive to its profit in the
first full year, excluding 50 cents per share of one-time charges.
The company expects synergistic benefits to noticeably add to
operating profit in 2013 and exceed $400 million annually in
2015.
Caterpillar continued to beef up
its financial status in the first quarter. The Machinery and Power
Systems debt-to-capital ratio improved to 30.4% at quarter end
compared with 34.8% at year-end 2010. Caterpillar generated
Machinery and Power Systems operating cash flow of $1.6 billion
compared with $1.1 billion in the first quarter of 2010. The
increase in cash flow was primarily attributable to higher profit
and lower receivables. Total Machinery and Power Systems cash at
the end of the first quarter was $3.6 billion, higher than the
prerequisite for normal operations. The company plans to lay out $3
billion in capital expenditures in 2011 with more than half to be
expended in the United States, a move that would boost its
long-term potential.
However, Caterpillar has entered
into a bridge loan agreement of up to $8.6 billion from certain
financial institutions to fund its Bucyrus acquisition. The loan
will increase Caterpillar’s debt-to-capital ratio. Integration
remains a key risk as Caterpillar has not carried out such a huge
deal in the last five years.
Further, headwinds from an increase
in period manufacturing costs, higher SG&A, and R&D
expenses, primarily related to implementation of emissions
requirements, higher tax expense primarily due to an unfavorable
geographic mix of profits from a tax perspective, bridge financing
costs of about $50 million related to the Bucyrus acquisition and
some additional costs related to integration planning might affect
Caterpillar’s margins.
Even though Caterpillar has upped
its 2011 outlook, the increase would have been greater if not for
the impact of the earthquake and tsunami in Japan. Even though
facilities were not damaged, many of the company’s suppliers in
Japan were impacted. Consequently, production has been affected at
many of its facilities around the world, leading to a negative
impact on sales, factory efficiency and costs, to be felt
particularly in the second quarter. Therefore, the disaster is
expected to have a negative impact of about $300 million on sales
and about $100 million on operating profit in 2011.
Peoria, Illinois-based Caterpillar
Inc. is the manufacturer of construction and mining equipment,
diesel and natural gas engines, and industrial gas turbines.
Effective from the first quarter of fiscal 2011, Caterpillar’s is
now focused around the new segments, namely Machinery and Power
Systems (which represents the aggregate total of Construction
Industries, Resource Industries, Power Systems, and all Other
segments and related corporate items and eliminations) and
Financial Products. Caterpillar competes with the likes of
CNH Global NV (CNH), Komatsu Ltd.
(KMTUY) and Volvo AB (VOLVY).
BUCYRUS INTL A (BUCY): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis Report
CNH GLOBAL NV (CNH): Free Stock Analysis Report
JOY GLOBAL INC (JOYG): Free Stock Analysis Report
VOLVO AB ADR B (VOLVY): Free Stock Analysis Report
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