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  1. Home
  2. / Investing

Caterpillar Drops Amid Market Uncertainty on Industrials

Caterpillar shares crawled downward on Tuesday.
By KEVIN CURRAN Oct 23, 2018 | 05:30 PM EDT
Stocks quotes in this article: CAT, HD

Caterpillar's (CAT) earnings beat was not strong enough to shift sentiment on what many have called the "Sicklical" industrial sector.

Shares of the Illinois-based was dragged down on Tuesday as the industrial sector is battered by souring investor sentiment.

Shares of the world's largest maker of construction and mining equipment, a giant in the industrial sector, fell 7.5% to $118.98 on the day. Trading volume on Caterpillar reached its second highest level in a year amid the commotion in its market sector.

Analysts Double Down

Still, none of the analysts filing research on the earnings release Tuesday were moved by the reaction to set a sell rating. In fact, six of the eight publishing research on FactSet set "Buy" ratings instead.

"Our 'outperform' rating is based on current valuation and perceived upside potential to earnings power due to removal of goodwill impairment risk," Wells Fargo senior analyst Andy Casey explained. "Revenue and earnings appear likely to improve from a cyclical bottom with skewed upside risk to current 2018 guidance."

He added that he sees the company like a "coiled spring" after being pushed down in recent months. As such, he set a price target of $180 per share, well above the sub-$120 prices the stock waded into on Tuesday.

Industrial Size Jitters

The issues pushing the spring down at the moment are largely macroeconomic factors like tariffs, rising interest rates, and an overall slowdown in the industrial sector.

Company executives, even outside of Caterpillar, lamented the material impact of those overarching factors on the share price of Caterpillar.

"It's unfortunate that we have these external events that are causing this jitteriness and uncertainty in the market," former Home Depot (HD) CEO Robert Nardelli said in an interview with CNBC, noting his belief that room for growth remains in the space.

"The only certainty is uncertainty," says former GE Power System and Home Depot CEO Robert Nardelli on industrial earnings and the volatility of the market earlier today. https://t.co/4G6IOBvx5Q pic.twitter.com/LXlRNOABIu

— CNBC (@CNBC) October 23, 2018

Caterpillar CEO Donald Umpleby tried to head off some issues in the macro space as well, explaining to analysts that the impact is already priced in.

"We don't expect a major impact because quite frankly we were already hit with the earlier tariffs, so we don't think a later change will have an impact on us," he said. "It was already baked in for us."

Good, Not Great Guidance

Real Money contributor James "Rev Shark" DePorre noted that investors are simply becoming unwilling to keep the laggard stock on their books as cyclical fears foment.

"CAT has obviously been thrown into the dumpster by those that held it as it sunk into earnings," he explained. "They just don't want it on the books at this point since it looks so poor."

He added that he has no interest in trading the stock at this point given all the questions that remain.

Analysts were not remiss in observing the cyclical uncertainty that is spooking investors. Certainly, the company's muted guidance figures add to that fear, which will suggest a squeeze on shares in the short-term.

"The modest beat, unchanged guidance, and contracting backlog likely will be negative for the stock," Casey pointed out.

Jefferies Financial analyst Stephen Volkmann even issued a hold, one of two analysts to do so according to FactSet, based upon the only modest beat and steady guidance.

"After a long string of large beat and raise quarters, CAT beat third quarter consensus by about $0.02 and maintained its full year outlook," he said in a note Tuesday. "All in, a good but not great quarter and outlook relative to expectations."

Technical Turn Bearish

From a more bearish point of view, the technical lean toward a potentially disastrous turn for Caterpillar shareholders.

"With no nearby chart support CAT could sink rapidly to the $100 area in the next few weeks," Real Money technical analyst Brue Kamich wrote in his take this morning.

The move would be an unwelcome one for already beleaguered shareholders of the industrial leader, which has seen shares evaporate to the tune of a 24.5% loss in 2018.

Bottom Line

With the variance of opinion spread out between the technically-minded market watchers, research analysts, and traders former Home Depot CEO Nardelli may have had the most salient point on Tuesday's trading on industrials.

"The only certainty is uncertainty."

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TAGS: Investing

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