Caterpillar (NYSE:CAT) Makes Big Moves With Revenue, Earnings Beats

There's no doubt that the coronavirus hit a lot of companies hard, and Caterpillar (NYSE:CAT) wasn't much of an exception. It actually saw some benefits, but took some hits as well. Caterpillar's latest earnings report demonstrates you can't keep a good heavy equipment manufacturer down. It turned in positive results overall, and even offered a note of hope for the next generation.

Bulldozing Through the Estimates

Caterpillar slammed through estimates, bringing in a hefty $2.12 per share in earnings against an expected $1.49 per share. The gain in fourth quarter earnings, reports note, was mainly due to a lower tax rate than expected, as well as “strong operational performance.”

Revenue, meanwhile, also turned in a beat, though a much narrower one than its earnings could post. Revenue came in at $11.235 billion against an expected $11.18 billion.

Operations didn't come without some drawbacks, as the company noted that dealers were cutting back on inventory at levels much worse than expected. While Caterpillar was looking for a $700 million cutback in inventories, dealers actually turned in a cutback of $1.1 billion for the quarter. Yet despite this, sales were still up from the third quarter, which offered up just $9.9 billion amid dealer inventory reductions of $600 million. Thus, despite the fact that dealers almost doubled their inventory cutbacks, they still helped realize more revenue, which suggests that perhaps the dealerships had been overstocked all along and were burning through some backlog.

In fact, word out of Caterpillar didn't go into much of specifics, but in general, the company is expecting gains for 2021. A “seasonal increase” in dealer inventories is likely on tap—given the reductions therein and accompanying sales increases, they'll likely need more to sell before too much longer—and further improvements in profit margins.

Analysts See an Uphill Climb

Meanwhile, the word from the broader analyst pool—based on our latest research—is actually worsening for Caterpillar. The company is currently rated a “hold”, as it has been for the last six months. The ratios determining that rating, though, are the most bearish they've been in that six months. Six months ago, the company had two “sell” ratings, nine “hold” and 11 “buy.” Three months ago, the ratios added one “sell” to the mix, bringing it to three “sell”, nine “hold” and 11 “buy.” A month ago, a “buy” was added in, but that buy is now gone, and the company stands at three “sell”, 11 “hold” and 11 “buy.”

The price target, however, has been gaining steadily for the last six months. It started at $135.53 six months ago, then jumped to $149.11. A month ago it hit $156.22 before reaching $166.26 today. This is the first time in six months, however, that the price target has represented downside for the company, as it trades at $185.45 as of this writing.

Banking on Rebuilding

2020 was not a great year for Caterpillar, as major construction and infrastructure projects temporarily took a back seat. In the beginning, such a move wasn't a bad plan, because no one really knew the extent of coronavirus, and sometimes, better safe than sorry really does apply. Even if safe does prove to make you sorry down the line.

However, as projects start to get back online, that's going to put in a demand boost for companies like Caterpillar, who are already starting to look for sales recovery in 2021. Such recovery has even been seen with the closing days of 2020; just look at the difference between third and fourth-quarter. Around an extra $2 billion in equipment got sold in that time frame, so to suggest a recovery therein isn't out of line.

In fact, one major movement of the coronavirus era is giving Caterpillar a good shot at fresh life: the housing boom. As the everything-at-home movement gains ground, people have been looking to change just what “home” looks like to better encompass the needs of constantly being there. Home offices, home exercise facilities, home entertainment and even homes in completely new places—just ask everyone who left New York City in a developing real estate bust—all need heavy equipment to properly build. That's going to put Caterpillar—a widely-recognized name in heavy equipment—at center stage.

Between a sort-of return to normalcy driven by coronavirus treatment options from vaccines to therapeutics, and the now-everpresent specter of more lockdowns driving more homebuilding, Caterpillar might just have an excellent 2021. All heavy equipment eventually needs replacing, and since 2020 pushed back a lot of those efforts, the pent-up demand factor may well come due with a vengeance and give Caterpillar a big leg up.