Caterpillar - A Momentum Stock Buy

Caterpillar, Inc. (CAT) recently hit a new 52-week high after reporting better than expected third-quarter results on Oct 21.

Company Description

Caterpillar, Inc. manufactures and sells mining equipment and diesel engines worldwide. The company was founded in 1925 and has a market cap of $35.5 billion.

Shares of CAT have been trending higher since bottoming out just above $21 in early March, helped by the company’s strong third-quarter results, reported on Oct 21.

Third-Quarter Results

Revenue was down sharply from last year, off 44% to $7.3 billion. But earnings came in far better than expected at 64 cents, 57 cents ahead of the Zacks Consensus Estimate. The company has beat in each of the last 3 quarters by an average of 644%.

In spite of the lackluster revenue production, CEO Jim Owens is optimistic on the company’s future, saying “We believe the third quarter marked the low point for Caterpillar sales and revenues in what has been the toughest recession since the 1930s. We are seeing encouraging signs that indicate a recovery may be under way.”

Caterpillar also said its earnings next year will benefit from additional layoffs to trim costs coupled with revenue growth forecast between 10% and 25%.

Estimates Jump

The analyst community is bullish on the CAT, with the current-year estimate jumping 55 cents to $2.05 in just the last 7 days. The next-year estimate is pegged at $2.48, a 21% growth projection.

Valuation

Based on the current-year estimate, this stock trades with a P/E multiple of 27X, a premium to the overall market.

The Chart

Shares of CAT recently broke through a short-term level of resistance at $55 and hit a new 52-week high, take a look below.

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