NEW YORK (TheStreet) -- Shares of Caterpillar (CAT) - Get Report were under pressure this morning, but prices have quickly rejected the lows. This can be seen in the "hammer" pattern in the Japanese candlestick chart below.
Today's candle pattern--even though we have not closed--has a long, lower shadow, with the price action below the opening, showing that so far prices have rallied well off the early lows.
What we want to focus on in the chart above is that CAT is close to a test and possible breakout over the declining 50-day simple moving average.
Back on Sepember 24 we said, "We could see CAT retest next support from 2010 to 2011 in the $60 to $50 area." CAT declined as low as $62.99.
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:
- CAT, with its decline in revenue, slightly underperformed the industry average of 18.3%. 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 0.84, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: CAT