Q2 Preview: Macro Weakness Will Weigh on Cat (CAT), But How Much is Priced Into the Stock?

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Shares of Caterpillar (NYSE: CAT) are outperforming the broader equities market on Tuesday afternoon ahead of the company's second-quarter earnings report on Wednesday morning. The stock is down 0.9 percent at last check, compared to the S&P 500 which is down almost 1.4 percent.

Investors have seemingly been clinging to concerns sparked by a warning from peer Cummins (NYSE: CMI) on July 10th. Cummins said it is now looking for FY12 sales to be flat year over year, down from a previous forecast looking for 10 percent growth. While Cummins shares tumbled about 9 percent, shares of Cat plunged about 3.5 percent. Caterpillar shares have not been able to push back over the $84 level since the warning.

Analysts on Wall Street expect Caterpillar to report quarterly earnings of $2.28 per share on sales of $17.11 billion. The company reported EPS of $2.37 and $1.52 in the first quarter of 2012 and second quarter of 2011, respectively.

Despite the recent warning from Cummins, analysts on Caterpillar have stayed bullish: our Ratings page for Cat shows 11 sell-side firms with a Buy rating on the stock, five with a Neutral, and none suggesting to sell.

Analyst Commentary:

• JPMorgan - Amid Cummins reduced outlook and volatility in macro data which is likely to continue through 2012, the firm remains "bullish on global GDP
  growth over the long-term, as emerging markets are likely to continue to outgrow
  developed economies for the foreseeable future (despite current headwinds in China and Brazil)." JPMorgan warned "Any notable deterioration in the macro environment, particularly in developing regions (China), could result in a potential slowdown in demand for mining equipment..."
  
  The firm lowered its CY12 EPS estimate from $9.62 to $9.20 and its CY13 estimate from $12.06 to $10.89 following the Cummins warning.
  
  Maintains Overweight but recently reduced the stock's price target from $132 to $109.
  
  
• Wells Fargo - the firm cited "a lackluster channel check, continued macroeconomic concerns, and strengthening dollar..." for reduced estimates. Wells Fargo said slower-than-expected growth could lead Caterpillar "to modify H2 12 through 2013 production schedules."
  
  The firm said "most of the lower earnings potential likely has been factored in by investors, so we expect CAT to Outperform from here on any sentiment improvement."
  
  Now expects Caterpillar to report second-quarter EPS of $2.25, down from $2.45 previously, FY12 EPS of $9.05, down from $9.75 previously, and FY13 EPS of $9.80, down from $11.25 previously. Wells Fargo reduced its valuation range from $127-$130 to $99-$102 on July 6th.

The company normally posts quarterly figures just after 7:30am ET. Tune in to our Earnings category to get an analysis of the results within seconds of the official press release.

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