Caterpillar: Belle of the Bellwethers - TheStreet

NEW YORK (TheStreet) -- Since Caterpillar (CAT) - Get Report reported third-quarter results on Oct. 20 -- it easily exceeded Wall Street targets, and made a bullish call for 2010 -- shares of the maker of the big yellow trucks have, perhaps not surprisingly, given their strong run-up through most of 2009, fallen by 6%.

It seems the stock has slipped into a holding pattern, analysts say, as investors await any sign of a true recovery of the company's business in North America. They'll be hunting for just such a signal when they delve into the company's 50-plus page fourth-quarter report, which Caterpillar will issue before the market opens Wednesday.

Investors and analysts will be looking for the Peoria, Ill., bellwether to again surprise to the upside with its quarterly bottom line. The current consensus estimate, according to a survey of sell-side analysts by Thomson Reuters, is calling for EPS of 28 cents on revenue of $8.1 billion. Year-over-year, the comparisons will be terrible, with profit down 74% and revenue off by a whopping 86% if Caterpillar hits those Wall Street targets square on. (The company has saved its bottom line from turning red by making a series of vicious cost cuts, including 30,000 layoffs.)

As usual, more attention will be paid to outlook, and observers are expecting Caterpillar to provide specific per-share earnings guidance for 2010.

Back in October, the company did provide 2010 revenue guidance --

exceptionally bullish guidance, at least according to some observers

-- saying that its top line could grow by 10% or even 25% from 2009.

That's a fairly wide range -- $36.2 billion to $41.1 billion -- and would translate to a low-end earnings target of $2.50 a share. Larry DeMaria, for one, an analyst at Sterne Agee, expects Caterpillar to go conservative with a forecast at the low end of the range (the company has been good at managing market expectations of late).

DeMaria, however, thinks $3 a share is more likely for 2010 EPS. The current Wall Street consensus target for 2010 is $2.71 a share.

Caterpillar, widely watched as a harbinger of global economic health since it sells its machinery into a variety of fundamental industries, including mining and construction, has preferred recently to harp on the growth in its international markets, especially China.

But as much as executives have liked to redirect attention eastward, North America remains the company's real profit engine. And it's the still-beleaguered construction industry that remains the heart and soul of its business.

So far, judging by the company's most-recent monthly sales updates, it looks as though the pace of Caterpillar's contraction has eased ever so slightly. In November, global sales of its machinery fell 45% from the same month in 2008. In October, the decline was 50%. In September, 52%.

Caterpillar and its dealers continue to shed bloated inventories at cut-rate prices, and investors will be looking for evidence of further destocking in the company's earnings report.

Any word of dealers starting to restock, of course, would mean the beginning of a true rebound and, says DeMaria, "The pace at which upturn occurs will determine how much the stock accelerates to upside."

Tuesday afternoon, Caterpillar shares were trading at $56.04, up 90 cents, or 1.6%.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.