Caterpillar Seen Lifting EPS Guidance

Investors will be looking for Caterpillar to lift its 2010 profit targets when it reports results Thursday.
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NEW YORK (TheStreet) -- When Caterpillar (CAT) - Get Report reports second-quarter results before the opening bell Thursday, investors will be looking for the industrial bellwether to tweak its guidance for 2010 in a positive direction.

That's not exactly surprising. One of Caterpillar's chief global competitors, the Japanese giant

Komatsu

, made a similar move when it reported results last week, hiking its profit projections by 41% on the back of strong demand from China, a crucial region for Caterpillar as well, which has banked on expanding business in the People's Republic for much of its growth this year. (This despite widespread fears, and some evidence, that measures by the Chinese government to ease ecomonic expansion had taken hold in recent weeks.)

Further supporting investors' confidence in a brigher EPS outlook,

Caterpillar last month reported sales-growth figures

for the three months between March and May, numbers that were widely viewed as evidence of the company's continued, if slow, recovery.

In April, Caterpillar told Wall Street to expect 2010 earnings of $2.50 to $3.25 a share, and year-over-year revenue growth of 10% to 25% for 2010. Analysts say the company has done a good job managing costs coming out of the recession. Caterpillar's own profit projections for 2010 have thus been judged as conservative by sell-side analysts, who, as a group, believe the company will earn $3.29 a share for the full year.

Revenue growth for the Peoria, Ill., giant remains the real bugaboo. Caterpillar's top-line projections for 2010 and beyond have, indeed,

produced quite a bit of skepticism

. Analysts think the company will post revenue in 2010 of about $38.9 billion, which would represent the low-end of Caterpillar's forecast range. The company's

new CEO, Douglas Oberhelman

, who took the reins on July 1, recently reiterated the aggressive growth targets of his predecessor, Jim Owens: EPS in 2012 of $8 to $10 a share. "I think moving forward, investors want to hear from Mr. Oberhelman what his plans are to get there," said Jeff Windau, an analyst at Edward Jones in St. Louis.

For the time being, Caterpillar has lived on the robust sales of its mining equipment. Construction, especially in the U.S., remains comatose. Though a recovery in that sector isn't expected until sometime next year, investors will be looking for Caterpillar to offer some detail on the vital construction front when it reports results Thursday. The company's aggressive growth targets for the next two years depend on improvement in sales in that segment, after all.

Investors and analysts appear to have split on the prospects for Caterpillar's stock price over the medium term. Of concern to many is the degree to which Caterpillar's shares -- up nearly 70% from the second quarter of 2009 -- has already priced in, at least when it comes to the second half of 2010.

Questions remain on whether Caterpillar is seeing real end-user demand, or whether an uptick in sales is only the result of replenishing drastically reduced dealer inventories. "I want to see real end market demand, as opposed to producing for inventory reasons," said Larry De Maria, an analyst at Sterne Agee in New York, who rates Caterpillar stock at neutral.

Others believe that the supply-demand balance is squarely in Caterpillar's favor. According to a recent research note by Morgan Stanley analyst Robert Wertheimer, the U.S. heavy-equipment fleet has dwindled by 20% since the recession began. Meanwhile, he estimated, demand has declined by 9%. The result? Dealers and end users will need to start buying new machines soon. Wertheimer,

a bull on Caterpillar since February

, rates the stock at buy.

For the quarter ended in June, analysts expect Caterpillar to post a profit of 85 cents a share, up from the 72 cents it posted a year ago, at the depths of the recession. Revenue, according to surveys of sell-side analysts, is expected to hit $9.8 billion in the quarter, which would represent a 24% increase over the year-ago period's $7.9 billion top line.

Caterpillar shares closed moderately higher Wednesday afternoon, gaining 0.7% to $66.86.

-- 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 TheStreet.com, 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.