Caterpillar earnings may spotlight China

Heavy equipment maker Caterpillar (CAT) is expected to book a 62% increase in first-quarter earnings on strong sales of excavators and other heavy equipment to China.

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The Peoria, Illinois, company has been winning a greater share of China’s business from its competitors. And China’s demand for excavators is rising: Melius Research said excavator sales, from all heavy equipment makers, to Chinese enterprises surged 79% in March. Melius expects demand from China for excavators will continue – noting that excavator sales need to stay high for years to bring China close to other economies in equipment use.

Analysts polled by Thomson Reuters expect Caterpillar, which reports Tuesday before the stock market opens, will report first-quarter profit of $2.08 per share on sales of $11.98 billion. That’s a big increase from last year’s first-quarter results when the company reported earnings per share of $1.28 on sales of $9.82 billion.

On Monday, Citigroup upgraded Caterpillar shares to Buy from Neutral, noting that the company will benefit from an improving Chinese construction sector.

The bank also said it expects the company’s shares to hit $180, less than its earlier expectation of $185 but still up sharply from its Monday price of approximately $154.

According to Thomson Reuters, analysts on average, have the stock rated between Buy and Hold. It has a price target of $178.26.

Caterpillar is an economically sensitive stock, with equipment sales responsive to the overall health of the global economy. The latest data, overall, shows that global economy is on solid footing and that should, in theory, be a positive for Caterpillar.

On Monday, a reading on the U.S. manufacturing sector showed that activity has climbed to a three-and-a-half-year high. The flash IHS Markit U.S. manufacturing PMI climbed to 56.5 in April from 55.5 in March. Any number above 50 indicates growth.