Editors' pick: Originally published March 3.
Shares closed up less than a percentage point to $95.12. One day earlier, the stock slid 4.3% after federal officials raided the industrial machinery company's Peoria, Ill. headquarters as part of a criminal probe.
Caterpillar said in a statement that it is cooperating with law enforcement and that it believes the search is related to an IRS investigation of parts transactions carried out by its Swiss affiliate from 2007 to 2012. In its most recent 10-K filing with the Securities and Exchange Commission, Caterpillar said that the IRS proposed a total charge of $2 billion in back taxes and penalties.
"We currently believe the ultimate disposition of this matter will not have a material adverse effect on our consolidated financial position, liquidity or results of operations," Caterpillar said in its 10-K. It first informed investors of the IRS issue in 2015.
Here's what analysts on Wall Street are saying about Caterpillar's situation:
Andrew Casey, Wells Fargo
"Should the full $2 billion charge apply, Caterpillar will likely realize an approximate $3.40 one-time charge and a $.25-.30 run-rate decrease to earnings per share... We recommend investors look through this negative news item and focus on longer-term cyclical improvement and expected faster earnings response to revenue growth given cycle to cycle structural cost improvement and decreased share count."
Stephen Volkmann, Jefferies
"Bigger picture, while we are impressed with Caterpillar's cost cutting measures, we believe that any recovery is likely to be both slower and lower than current valuations seem to suggest. Still, we believe that the IRS issues will potentially take years to resolve and should not change investors' views of Caterpillar's earnings power over the next couple of years."