October 24, 2018

For today's bulletin, we take a look at the latest news on Caterpillar $CAT and provide a link to download a copy of our latest stock report on the banking giant.

VALUATION WATCH: Overvalued stocks now make up 41.2% of our stocks assigned a valuation and 16.01% of those equities are calculated to be overvalued by 20% or more. Seven sectors are calculated to be overvalued.

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Caterpillar Posts Better Profits, But Trade Fears Increase and Shares Drop

Caterpillar Inc. (CAT) is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Caterpillar provides the solutions you need to build a successful construction contracting business. Cat Connect makes smart use of technology and services to improve your operational efficiency. Working with your Cat dealer, you can find the right combination of Cat Connect technologies and services for your sites. Cat Financial provides retail and wholesale financing solutions to Cat customers and dealers for the complete line of Cat machinery and engines, Solar gas turbines, other related equipment and marine vessels. As a captive finance company, no other financial institution knows Cat customers and dealers better than Cat Financial. They offer quality service throughout the life cycle of equipment including purchase, protect, manage and resell.

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We keep waiting for fallout from Trump Administration trade policies and his tariff war to make a negative impact on companies with global business interests and Caterpillar is the poster child for those companies. Today, the company posted Q3 numbers and they showed a mixed bag for the firm.

Sales and revenues of $13.5 billion, compared with $11.4 billion in the third quarter of 2017 showed an 18 percent increase. Caterpillar CEO Jim Umpleby noted that "this was the best third - quarter profit per share in our company’s history. Our global team continues to do excellent work focusing on our customers’ success and executing our strategy for profitable growth.”

The company’s 2018 profit per share outlook is a range of $10.65 to $11.65. The company is maintaining the adjusted profit per share outlook range of $11.0 0 to $12.00 . The current profit per share outlook now includes a net tax benefit of $95 million that was recorded in the third quarter of 2018 to adjust deferred tax balances. The outlook for adjusted profit per share excludes restructuring costs of about $400 million and the net tax benefit.

So, what was the street's response to these seemingly good numbers? The shares took a big hit. Investors got scared off by the fact that Caterpillar also reported some supply chain difficulties as materials and transportation costs have escalated. Their answer to these challenges? Raising prices by 1%-4%. That will not help them stay competitive in the face of strong international competition.

In addition, the firm reported direct costs related to the Trump tariff war of $40 million. They believe that total costs of the trade war will be in the range of $100-200 million for the year.

As you can see from the long-term chart below, our models have soured on CAT recently, and we now rate it a SELL.

VALUENGINE RECOMMENDATION: ValuEngine continues its SELL recommendation on Caterpillar Inc. for 2018-10-22. Based on the information we have gathered and our resulting research, we feel that Caterpillar Inc. has the probability to UNDERPERFORM average market performance for the next year. The company exhibits UNATTRACTIVE Book Market Ratio and Momentum.

You can download a free copy of our summary report on Caterpillar Inc. (CAT) from the link below.

ValuEngine Forecast
	Target Price*	Expected Return
1-Month	127.77	-0.73%
3-Month	124.51	-3.26%
6-Month	121.09	-5.92%
1-Year	117.43	-8.76%
2-Year	111.46	-13.40%
3-Year	113.96	-11.46%

Valuation & Rankings
Valuation	24.06% undervalued	Valuation Rank(?)	79
1-M Forecast Return	-0.73%	1-M Forecast Return Rank	11
12-M Return	-2.26%	Momentum Rank(?)	52
Sharpe Ratio	0.52	Sharpe Ratio Rank(?)	79
5-Y Avg Annual Return	12.07%	5-Y Avg Annual Rtn Rank	80
Volatility	23.36%	Volatility Rank(?)	61
Expected EPS Growth	18.74%	EPS Growth Rank(?)	54
Market Cap (billions)	77.92	Size Rank	99
Trailing P/E Ratio	11.94	Trailing P/E Rank(?)	81
Forward P/E Ratio	10.06	Forward P/E Ratio Rank	74
PEG Ratio	0.64	PEG Ratio Rank	52
Price/Sales	1.52	Price/Sales Rank(?)	55
Market/Book	11.71	Market/Book Rank(?)	13
Beta	1.39	Beta Rank	20
Alpha	-0.00	Alpha Rank	63

DOWNLOAD A FREE SAMPLE OF OUR CATERPILLAR (CAT) REPORT BY CLICKING HERE

Steve Hach
Senior Editor
ValuEngine.Com