Caterpillar manufacturers heavy equipment and it supplies industries like mining, construction, and transportation. In a way, it could be considered a gauge of global demand because of its client list. When the pandemic struck in spring of 2020, the share price of Caterpillar tumbled below the $90.00 mark – a level last seen in late 2016. When it because clear that lockdowns would eventually be unwound and that would unleash pent up demand, it fuelled a massive rally in the stock. Caterpillar’s share price cleared $250.00 in June 2021, which was its record high. Since then, the stock has been broadly trending lower, but it is still comfortably above the pre-pandemic level.
The group posted its second quarter results in August and that led to a jump in volatility. EPS was $3.18, which topped the $3.01 forecast. Revenue rose by 10.5% to $14.25 billion, narrowly missing the $14.35 billion consensus estimate. Like other companies, Caterpillar endured higher costs as well as supply chain issues. The firm’s exit from the Russian market dented revenue. The services division performed well, and that helped counteract the dip in sales volume of machinery. It is a little worry that equipment sales underperformed as that could be viewed as a sign of overall weaker demand across mining and construction sectors. Investing in plant and machinery is often seen as a good measure of how firms feel about the future, and it seems that clients of Caterpillar are a little cautious.
Adjusted operating margin was 13.6% and that was a slight fall from the 13.9% seen in the same period one year ago. The dip in margin indicates that rising manufacturing costs are eating away at the bottom line. Even though the macroeconomic climate is not overly sunny, Caterpillar returned $1.7 billion to shareholders via dividends and share buybacks. The move projects an air of confidence, not to mention it was welcomed by shareholders. The quarterly results weighed on the share price but since then it has managed to recoup most of the ground it lost.
Caterpillar’s share price fell to its lowest mark in over one year in mid-July, and since then it has been largely moving higher. If the bullish move continues, it could target $200.00, and if that level is cleared, it could bring $212.00 into play. A move lower from here might find support in the $185.00 zone, and a fall below that region could pave the way for $175.00 to be targeted.