Is Caterpillar (CAT) Stock a buy ahead of next week’s earnings?

Shares of construction equipment maker Caterpillar Inc. (NYSE: CAT) rose to an all-time high this week, at a time when the broad market is experiencing high volatility. CAT has been on a winning streak for quite some time and is gaining strength ahead of next week’s earnings.

Investing in CAT

After the rally, the valuation looks high and it seems that a retreat is imminent. As far as the stock’s future course is concerned, the picture will be clearer after fourth-quarter data is published. While short-term investors can gain by selling now, it is not a good time to buy. It makes sense to add the stock to the watchlist and see how it performs in the coming weeks. Meanwhile, Caterpillar remains a favorite among income investors, thanks to the annual dividend hikes and decent yield.

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Caterpillar Inc Q3 2022 Earnings Call Transcript

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Being a market leader in the production of mining and industrial machinery, Caterpillar has remained largely resilient to the pandemic and the challenging macro environment. Continued heavy investments in mining and energy projects, despite the interest rate hikes, bode well for the company. An uptick in production scale would translate into higher margins in the long term.

Q4 Report Due

The fourth-quarter earnings report is scheduled for release on January 31, before trading starts. It is widely expected that the company generated revenues of slightly more than $16 billion in the final months of 2022, which is up 17% from the prior year. The solid top-line growth is estimated to have resulted in a 50% jump in adjusted earnings to $4.02 per share.

Interestingly, the company’s profit topped expectations consistently in almost every quarter since early 2020 and the trend is likely to continue, considering the strong order and backlog position. Earlier, Caterpillar’s CEO Jim Umpleby had provided a mixed outlook for the December quarter.

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Earnings: Everything you need to know about 3M Company’s Q4 results

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“We expect adjusted operating profit margins to be significantly higher in the fourth quarter versus the prior year and slightly higher than in the third quarter. However, we now anticipate that our full-year margins will be at the low end or slightly below the low end of the Investor Day target range. The headwind is primarily due to ongoing manufacturing inefficiencies related to supply chain constraints, ongoing inflationary pressures within manufacturing cost, and our conscious decision to continue to invest for profitable growth,” said Jim.

Financials

In October last year, Caterpillar impressed stakeholders by reporting a 21% growth in third-quarter revenues. The top line came in at $15 billion, supported by an exceptionally strong performance by the main business units and higher sales across all geographical segments. As a result, adjusted profit surged 48% to a record high of $3.95 per share. The latest number also came in above analysts’ consensus forecasts.

Shares of Caterpillar have risen an impressive 23% since the last earnings, after hitting a two-year low a few weeks before the announcement. CAT traded near $260 on Thursday and maintained a modest uptrend throughout the session.