飞云浦
Our key holding
星期五 四月 20, 2007 9:05 am
Shares in Dow Industrial Caterpillar (CAT, 68.69) have finally recovered from their October free-fall when CAT's roar turned into a whimper. The stock traded down as much as 14% after CAT not only missed expectations, but also reduced full year guidance and gave an FY07 forecast that was well below the market's expectations.
In November, we reaffirmed our positive outlook on the stock, arguing that the company typically takes a conservative tone to guidance and that the slide in shares, coupled with a seasonal outperformance, made levels an attractive buying opportunity. Since then, the stock has gained 20% and the upside is far from over.
Today, the whimper, once again, turned into a roar after Caterpillar plowed through estimates by fifteen cents with earnings of $1.23 per share and raised FY07 guidance.
Revenues, excluding financial products, rose 6.6% year/year to $9.32 billion - well above the street's estimate of $8.91 billion. A 10% revenue decline in North America was offset by a 36% jump in the EMEA region, a 15% jump in Latin America and 22% growth in Asia. But higher costs and reduced volumes weighed on profits.
Profit of $816 million was down $24 million from the prior year as higher operating costs, reduced sales volumes, and a higher tax rate offset improved price realizations. The EPS upside was mainly attributed to strong topline growth, other income, and a reduced share base.
The caveat to the quarter was the material cost increase. Operating margins declined from 12.9% in the previous year to 11.4% as a result of increased manufacturing costs from higher warranty and material costs and reduced operating efficiencies. CAT's worldwide employment has grown nearly 10% over the last year.
CAT's cautious tone has now turned more optimistic, raising the bar for the full year. It expects that despite "major headwinds" in the North American housing market and a sharp decline in highway truck engines, continued strength across the majority of its markets, namely robust global demand for its products, will help deliver good results this year. It anticipates global economic growth will slow from 4% to 3.5% this year, including 2% growth in the US.
It now sees earnings of $5.30-$5.80 per share from its previous forecast range of $5.20-5.70. The upside is derived from price realizations, partially offset by lower sales volumes, higher core operating costs, and a higher tax rate. The mid and high end are well above the current consensus estimate of $5.46.
Revenues are now targeted at $42-$44 billion, up from $41.5-$43.6 billion, indicating growth of 4%. The guidance includes financial products revenues, and thus is not comparable to the $40.02 billion consensus. The stock trades at 12.5x forward earnings.
CAT is a direct beneficiary of the global ramp in capital spending for exploration and production within the commodity and energy sectors, making it an attractive long-term investment in our view. Our bullish bias towards CAT has always been based on its global market presence, diversified business, and depth of products, leaving it less exposed to a downturn in one particular area. While global growth should offset NA weakness, a higher cost environment will be its Achilles heel.
--Kimberly DuBord, Briefing.com
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