Heavy Machinery Stocks Pulled Higher on Caterpillar (CAT) Results

NEW YORK (TheStreet) -- Bellwether stock Caterpillar (CAT) posted fourth-quarter earnings which crushed analysts' expectations on Monday. By topping estimates, the world's largest mining and construction equipment maker took a step towards restoring confidence an industrial recovery is underway, pushing industry competitors higher in morning trading.

Caterpillar recorded fourth-quarter net income of $1.54 a share, 48% higher than in the same quarter of 2012 and significantly more than the $1.28 a share expected by Thomson Reuters-surveyed analysts. Quarterly revenue of $14.4 billion came in 10.4% lower than the year-ago period but managed to exceed consensus by $762 million.

"We see some signs of improvement in the world economy," said Caterpillar CEO Doug Oberhelman in a statement.

By mid-morning, crane manufacturer The Manitowoc Company (MTW) popped 2.4% to $24.19, while heavy machinery maker Terex Corporation (TEX) added 1.7% to $38.55. Agricultural equipment specialist Deere & Company (DE) climbed 1% to $86.39, and mining machinery maker Joy Global (JOY) topped 1.3% to $53.36.

TheStreet Ratings team rates MANITOWOC CO as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate MANITOWOC CO (MTW) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, good cash flow from operations, solid stock price performance and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 22.1%. Since the same quarter one year prior, revenues slightly increased by 7.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 129.41% and other important driving factors, this stock has surged by 46.32% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • MANITOWOC CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MANITOWOC CO increased its bottom line by earning $0.77 versus $0.22 in the prior year. This year, the market expects an improvement in earnings ($1.25 versus $0.77).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Machinery industry. The net income increased by 138.3% when compared to the same quarter one year prior, rising from $22.20 million to $52.90 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Machinery industry and the overall market, MANITOWOC CO's return on equity exceeds that of both the industry average and the S&P 500.

TheStreet Ratings team rates TEREX CORP as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate TEREX CORP (TEX) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • TEREX CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TEREX CORP increased its bottom line by earning $0.92 versus $0.34 in the prior year. This year, the market expects an improvement in earnings ($2.13 versus $0.92).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Machinery industry. The net income increased by 212.6% when compared to the same quarter one year prior, rising from $30.20 million to $94.40 million.
  • Powered by its strong earnings growth of 185.18% and other important driving factors, this stock has surged by 40.21% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • Despite the weak revenue results, TEX has outperformed against the industry average of 22.1%. Since the same quarter one year prior, revenues slightly dropped by 0.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • TEX's debt-to-equity ratio of 0.91 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.84 is weak.

TheStreet Ratings team rates DEERE & CO as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate DEERE & CO (DE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, good cash flow from operations, impressive record of earnings per share growth and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Machinery industry average. The net income increased by 17.3% when compared to the same quarter one year prior, going from $687.60 million to $806.80 million.
  • Net operating cash flow has increased to $2,666.50 million or 15.77% when compared to the same quarter last year. Despite an increase in cash flow, DEERE & CO's cash flow growth rate is still lower than the industry average growth rate of 29.61%.
  • Despite the weak revenue results, DE has outperformed against the industry average of 22.1%. Since the same quarter one year prior, revenues slightly dropped by 3.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • DEERE & CO has improved earnings per share by 20.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DEERE & CO increased its bottom line by earning $9.08 versus $7.64 in the prior year. For the next year, the market is expecting a contraction of 6.7% in earnings ($8.48 versus $9.08).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Machinery industry and the overall market, DEERE & CO's return on equity significantly exceeds that of both the industry average and the S&P 500.

TheStreet Ratings team rates JOY GLOBAL INC as a Hold with a ratings score of C+. The team has this to say about their recommendation:

"We rate JOY GLOBAL INC (JOY) 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. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and notable return on equity. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The current debt-to-equity ratio, 0.46, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.09, which illustrates the ability to avoid short-term cash problems.
  • JOY, with its decline in revenue, slightly underperformed the industry average of 22.1%. Since the same quarter one year prior, revenues fell by 25.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for JOY GLOBAL INC is currently lower than what is desirable, coming in at 32.87%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.27% trails that of the industry average.
  • Net operating cash flow has declined marginally to $195.28 million or 5.01% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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