With shares of Caterpillar Inc. (NYSE:CAT) trading at around $97.13, 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:
C = Catalyst for the Stock’s Movement
Let’s cover the basics before the drama. Q4 net income was down 55 percent, which was due to lower dealer inventories and a $580 million write-down stemming from accounting misconduct at a Chinese subsidiary. Apparently, it’s not that easy to escape drama. Let’s try again. Q4 EPS came in at $1.04 compared to $2.32 one year ago. Q4 revenue declined to $16.10 billion from $17.24 billion. Obviously, the quarter wasn’t that impressive. However, full-year numbers were strong. FY2012 EPS came in at $8.48 versus just $7.40 for 2011. Revenue also increased to $65.90 billion from $60.14 billion. Now let’s get to the drama.
Caterpillar acquired a Chinese roofing company last year. During that short span of time, this company, known as Siwei, was cooking the books and attempting to cover it up. There are reports that Siwei had been involved in similar practices in the past. If that’s true, then it shows poor research on the part of Caterpillar. Luckily for Caterpillar, it could afford the hit, but only financially. The reputation and trust factor in regards to investors may have been slightly to moderately compromised. That remains to be seen. The stock is up over 1 percent today, but it takes a while for these types of events to play out and sink in. In the meantime, it’s important to note that Caterpillar is predicting a tough year ahead. This warning, combined with the Chinese acquisition debacle, might make it a wonder why the stock is up today. It’s due to earnings, and because analysts are touting this as a buying opportunity. It’s difficult to understand that when the street falls in love with a stock, it’s very difficult for the street to let that stock go.
Let’s take a look at some important numbers for Caterpillar before forming an opinion…