Tuesday, July 21, 2009

CAT Sells the Hope

The market is getting excited about Caterpillar's (CAT) results this morning. CAT has been at the center of the slowdown, and was one of the first companies that showed the coming recession through slowing earnings (two years ago). So, I'd like to think that CAT will provide signs of a coming recovery, and maybe will be one of the first one to see improvement. Here's today's quote from CEO Jim Owens (data via Reuters).

"There is still a great deal of economic uncertainty in the world," Jim Owens, the company's chairman and chief executive, said in a statement. "But we are seeing signs of stabilization that we hope will set the foundation for an eventual recovery."

To me, they are selling hope. The numbers weren't pretty, but they did raise their full year outlook, and in a market that wants to go up, thats all it takes.

-Caterpillar raised its outlook for full-year profit, including redundancy costs, in a range of 40 cents to $1.50 with a midpoint of 95 cents a share. When it reported first-quarter results three months ago, Caterpillar put that midpoint estimate at just 50 cents a share.

-The company, the world's largest maker of mining and construction vehicles, reported a second-quarter net profit of $371 million, or 60 cents a share, compared with $1.11 billion, or $1.74 a share, last year.

-Sales and revenue fell 41 percent to $7.98 billion. Analysts, on average, had expected the Peoria, Illinois-based company to report a profit of 22 cents a share on sales of $8.36 billion, according to Reuters Estimates.

I see CAT reacting to what the rest of the market has been saying and going along with it. That's fine I suppose. The market has indeed stabilized, and we're all waiting for more signs of recovery. The only problem with that is stock continue to move higher, as they're already starting to price in that eventual recovery. We still don't know how robust that recovery will be. Can stocks run further? Sure. If the market continues to react to earnings reports like this the way they're reacting this morning, there is plenty of upside left in the market.

Disclosure: None

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