Why Caterpillar (CAT) Is A Must-Add Stock To Your Portfolio

Shares of the mining and construction equipment behemoth, Caterpillar Inc. (NYSE:CAT) has been performing well of late. If you haven’t taken advantage of the share price appreciation yet the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead. The stock has an estimated long-term earnings growth rate of 9.50%.

Favorable Zacks Rank & Score: Caterpillar sports a Zacks Rank #1 (Strong Buy) and a VGM score of B. Here V stands for Value, G for Growth and M for Momentum. Caterpillar’s score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners.

Solid First-Half Performance: Caterpillar has had a solid run so far in 2017 after dismal performances last year. The company delivered an upbeat second-quarter with adjusted earnings per share improving 37% while revenues improved 9.6%. This follows a stellar first-quarter wherein the company reported year-over-year improvement in both the top and bottom lines for the first time in 10 quarters. The better-than-expected results continue to be driven by its disciplined cost-control efforts. Further, Caterpillar’s backlog was at $14.8 billion at the end of second-quarter 2017, a year-over-year improvement of about $3 billion.

Hiked Guidance: Owing to the upbeat first-half performance, improved order activity and disciplined cost control, Caterpillar also hiked revenue guidance during second-quarter conference call to the range of $42-$44 billion from the prior range of $38-$41 billion. The company now projects earnings per share of $5.00 per share compared with previous guidance of $3.75 per share. The mid-point of the revenue guidance and earnings per share guidance reflect a year-over-year growth of 12% and 46% respectively.

Ahead of the Industry: The company has outperformed the industry in the past one year. Shares have gained 35% while the industry registered an increase of 25.6%.

We note that the industry is also favorably placed as it occupies a space in the top 1% of the Zacks classified industries (3 out of the 256).

Estimates Northbound: Estimates for Caterpillar have moved up in the past 30 days, reflecting the optimistic outlook of analysts. The earnings estimate for fiscal 2017 has surged 22% while that of fiscal 2018 has moved up 23%.

For fiscal 2017, the Zacks Consensus Estimate for earnings is pegged at $5.22, depicting a year-over-year growth of 52.50% while the estimate for fiscal 2018 of $6.63 displays year-over-year growth of 27.14%.

Positive Earnings Surprise History: Caterpillar has outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 41.43%.

Growth Drivers: Caterpillar’s share price has benefited since the presidential victory of Donald Trump as investors anticipate his plans of big spending in infrastructure to boost Caterpillar’s revenues which had so far borne the brunt of weak mining demand. The company will also gain from its incessant focus on cost reduction and improvement in the Asia Pacific region. In construction, Asia Pacific is showing promise while leading indicators of U.S. non-residential construction signal robust conditions ahead.

Other Stocks to Consider

Other stocks in the industrial product space include AGCO Corporation (NYSE:AGCO) , Terex Corporation (NYSE:TEX) and Deere & Company (NYSE:DE) . AGCO and Terex sport the same rank as Caterpillar while Deere carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has expected long-term growth of 13.51%.

Terex has an expected long-term growth of 19.67%.

Deere & Company has an expected long-term growth of 9.17%.

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