Caterpillar's significant presence and role in supplying construction machinery in multinational markets makes it a de facto indicator of the global economy. That's good news for investors who were pleasantly surprised by CAT's third-quarter earnings report.
Earnings per share of $1.71 was well ahead of estimates of $1.55, while revenue of $15.7 billion easily beat estimates of $15 billion. The stock has shown an impressive 30.16% rally since the start of October, from $70.55 per share to around $92 per share by Monday afternoon.
Reuters reports backlog orders stand at record levels and higher commodity prices lead to a favorable environment for its growing mining business. Better yet, the company is reporting a 44% quarterly earnings increase due to record revenue, and signaled optimism in its 2012 outlook.
"Construction activity is increasing in developing markets, while buyers in more mature markets -- such as the United States -- are buying new machinery in order to replace aging fleets rather than investing for growth. Equipment-rental operators are also purchasing new equipment in order to freshen their fleets, the company said."
So what do the rallying shares mean for the global economic recovery?
According to CAT executives, the company is anticipating developing countries to show continued improvement in what are currently low-level sales. Growth in developing countries is predicted to be similar in 2012 as it was in 2011, meaning high sales of products and services. Overall, CAT expects sales to improve 10% to 20% from the 2011 outlook.
The company is anticipating a slight drop in Chinese demand levels as the government aims to constrict growth. Caterpillar will therefore be building up their China market share with caution.
Otherwise, they believe 2011 signals a continued, albeit slow, economic recovery in developed and developing nations. Do you agree? If so, do other construction companies stand to gain as well?
To help you follow the trends on other construction companies here is a list of the 10 largest construction companies by market cap trading on U.S. exchanges.
All of the names are rallying above their 20-day and 50-day moving averages. Do you think they have more momentum to price in? (Click here to access free, interactive tools to analyze these ideas.)
2. Deere & Company
3. Joy Global
4. CNH Global
8. Astec Industries
10. Nacco Industries
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above.
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