Caterpillar (CAT) Stock Up Despite Expectations for Lower China Demand
NEW YORK (TheStreet) -- Caterpillar (CAT) - Get Report stock is rising by 1.08% to $70.38 in late afternoon trading on Monday, despite the company's expectations that Chinese demand for excavators will not rebound from the highs of 2010 to 2012, the Financial Times reports.
China's economy grew at its slowest rate since 2009 during the third quarter, largely due to falling construction and factory activity, the Financial Times reports. Caterpillar believes that China's demand for hydraulic excavators will hit the "23,000 range," compared to sales of 112,000 during the peak year of 2010.
"My expectation is within China and globally that the market will pick up to a level above where we are in 2015," Tom Pellette, group president for construction industry equipment, told the Financial Times. "But for China specifically, our expectation is that the market will rebound but we are not planning [for it to] get back to 2011/2012 levels."
Additionally, Barclay's notes that the mining and construction equipment manufacturer's leasing portfolio is "relatively stable," Barron's reports.
The firm contrasted this with leasing operations at Deere (DE) and CNH Industrial (CNHI), noting, "we do not have a negative thesis on Caterpillar Financial as we do on both Deere and CNH Industrial..." Barron's adds.
Separately, TheStreet Ratings team rates CATERPILLAR INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate CATERPILLAR INC (CAT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and poor profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 19.3%. Since the same quarter one year prior, revenues fell by 19.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- CATERPILLAR INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CATERPILLAR INC increased its bottom line by earning $5.87 versus $5.75 in the prior year. For the next year, the market is expecting a contraction of 21.6% in earnings ($4.60 versus $5.87).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Machinery industry. The net income has significantly decreased by 63.8% when compared to the same quarter one year ago, falling from $1,017.00 million to $368.00 million.
- The debt-to-equity ratio is very high at 2.36 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, CAT maintains a poor quick ratio of 0.85, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: CAT
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.