Caterpillar Earnings Up, Price Down – Here’s What's Next

Caterpillar Inc. reported its fourth-quarter earnings, revealing a mixed financial performance. 

The company posted earnings of $5.14 per share, surpassing the Wall Street’s consensus by $0.12.  Predictions were for earnings of $5.02 per share. 

However, Caterpillar did not meet revenue expectations, with a 5.1% year-over-year decline, totaling $16.2 billion compared to the anticipated $16.61 billion.

The report also highlighted a decrease in dealer inventory by $1.3 billion during the quarter, marking a more substantial reduction than the $900 million decrease recorded in the fourth quarter of the previous year. 

This inventory adjustment reflects a significant shift in the company’s operational dynamics.

Diving into specific sectors of the company’s operations, 

Construction Industries segment saw an 8% decrease in revenue, totaling $6.00 billion. 

Resource Industries faced a sharper decline, with revenue dropping by 9% to $2.96 billion. 

On a brighter note, the Energy & Transportation segment maintained steady revenue, remaining flat at $7.65 billion. 

This diverse performance across sectors illustrates the varying impacts of market conditions on Caterpillar’s different business units.

Wall Street analysts have been neutral on the name for more than a year as concerns over the global economic recovery continue to dominate their outlook.

The stock reflects the tepid outlook of Wall Street as Caterpillar shares have traded in a wide range over the last five months.

The stock’s recent test of the $350 price level represents the bottom of that range.  That same price is also where the stock’s 20—day moving average resides.  This trendline is the second most watched technical indicator by investors meaning that a move below it would put the stock out of favor with investors.

Today’s 4% drop in price puts CAT shares back below their neutral 50-day moving average at $380.  A failure to move above that trendline by next week will target a re-test of the stock’s $350 level.

For now, the neutral outlook is likely to result in an extension of Caterpillar’s trading range.  Investors will continue to monitor inflation gauges as an increase in interest rates would result in lower prices for the heavy machinery manufacturer.

Caterpillar’s long-term outlook remains neutral with a $350 target price.

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