Caterpillar (CAT) was one of the stellar performers of the Dow for 2010 and the stock is continuing its run well into 2011. The company's strong bounce-back from the 2008 and 2009 recession seems destined to continue for the foreseeable future.
Caterpillar provides investors with exposure to several major market trends. The fortunes of the company are cyclical; when there is economic growth, the growth of CAT revenues will strongly reflect the growing economy.
Caterpillar also allows investors to participate in emerging market economic growth by investing in a major U.S. company. The heavy equipment maker generates almost two-thirds of its revenues outside of the United States. For the first quarter, revenue grew 84 percent in Latin America, 64 percent for Europe and the Middle East, and 34 percent in Asia.
On top of all that, CAT provides investment exposure to rising commodity prices. As commodity producers earn more profits and expand their operations, they buy more equipment.
The 2011 first quarter financial results show the power of CAT's current growth trajectory. Revenues increased by 57 percent year-over-year to $12.95 billion. The net income of $1.225 billion, or $1.84 per share, was a fourfold increase over the same quarter in 2010.
CAT management increased full year net income guidance by about 50 cents per share to a range of $6.25 to $6.75. CAT earned $4.15 per share in 2010.
Closing the deal
Current earnings and revenue projections do not factor in the completed purchase of mining equipment manufacturer Bucyrus (BUCY), an $8.6 billion deal that received U.S. Department of Justice clearance to proceed in mid-May.
In 2010, Bucyrus generated $3.6 billion in sales with over $500 million in profits. Caterpillar's $800 million purchase of German engine manufacturer MWM Holding GmbH also will close later in 2011.
Following the first quarter earnings report, several analysts reiterated their buy ratings on Caterpillar, including Jeffries, RBC Capital, Morgan Stanley, and Citigroup. Target prices were increased and range from $120 to $140 per share.
Over the last four quarters, CAT has exceeded the Wall Street consensus on earnings per share by an average of 24 percent.
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