Can Caterpillar Continue to Rise Post-Earnings?

With shares of Caterpillar (NYSE:CAT) trading around $90, is CAT an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Caterpillar is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. It operates in two segments: Machinery and Power Systems, and Financial Products. Infrastructure investment is increasing around the world, in particular, in developing countries. A global supplier of industrial equipment, like Caterpillar, is poised to see rising profits from this trend. As long as countries continue to grow and develop, Caterpillar will provide the tools essential to create this progress.

Caterpillar posted a stronger-than-expected quarterly profit on Monday as cost cuts and an uptick in demand for its building equipment offset continued weak sales to the mining industry. The results, together with a better-than-estimated preliminary profit forecast for 2014 and a new $10 billion share repurchase plan, sent Caterpillar’s stock up as much as 7 percent in early trading on the New York Stock Exchange.

“We expected there would be a decline in mining sales in 2013, and it turned out to be worse than we anticipated,” Doug Oberhelman, the chair and chief executive officer, said in a statement. “As a result, we took substantial actions to reduce costs which helped mitigate the impact on profit.” Caterpillar, which cut nearly 10,000 jobs globally last year, said it was beginning to see “some signs of improvement in the world economy, which should be positive for sales” down the road. It expects construction-equipment sales, which jumped 20 percent in the most recent quarter, to rise another 5 percent in the coming year.