Investors waiting eagerly to see what Caterpillar (CAT 3.47%) has to say next month when they report year-end results got a potential preview from another public company. Commentary from United Rentals (URI 12.96%) appears to have lit a fire under shares of Cat, sending shares of the heavy equipment maker up nearly 3% as of 2:30 p.m. ET Thursday.
The stock had been up as much as 4.3% earlier in the day.
The building boom might not be over
Caterpillar has a lot riding on its upcoming earnings report, which is due to be released on Feb. 5. The company’s third-quarter report was a disappointment, sending shares crashing down 17% for the month of October. The shares have mostly recovered in the months since, but investors are nervous about what the company will say about the year to come.
If United Rentals is any indication, the end market for Cat equipment is holding up a lot better than feared. United Rentals forecast higher-than-expected earnings in 2024, boosted its dividend, and announced a new share repurchase plan based on the strength of its business pipeline — in particular, the sort of large projects that require a lot of the heavy equipment Caterpillar is known for.
Although it can be dangerous to read too much into another company’s earnings report, the implications for Caterpillar are clear and investors are feeling optimistic.
Is Caterpillar a buy heading into earnings season?
With inflation seemingly under control and the economy still humming, there is good reason to hope that demand for construction and mining equipment has not fallen off a cliff. But first, a few words of caution.
For one, there is a big difference in companies feeling confident enough to rent equipment from United Rentals and feeling confident enough to commit to buying new equipment from Cat. If large equipment users are at all worried about where the economy goes from here, they could hold off on big-ticket purchases, so Cat might not be seeing the same activity that United Rentals is seeing.
Also, Cat in recent quarters has a history of selling off even after good earnings news. Last April, the stock fell following a blockbuster earnings report on investor fears that the results were not repeatable. The stock has been a big winner over the past five years, and the market is nervous about what the future might hold.
Such can be the fate of a cyclical business like Caterpillar. Even when times are good, short-term-focused investors worry about the inevitable turn for the worse. Given the recent history, investors are probably best served just waiting to see what Cat has to say for itself in a few weeks.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
