Caterpillar Inc. (NYSE:CAT), which was the second-best performer in the Dow Jones Industrial Average in 2017, has come under a fair amount of pressure so far this year due in part to tariff saber-rattling on industrial metals. The company derives 70% of its revenue from outside the United States, so whether it’s related to metals or the $60 billion in tariffs on other items, there’s a chance it could come in the crosshairs of retaliation.
To be sure, China has been a super-hot market for CAT and should remain that way as the country continues to urbanize and build out its new Silk Road. However, the U.S. is still the most critical market. Take a look at the company’s fourth-quarter geographic revenue from a year ago:
-North America: $5.459 billion, up 46% year-over-year
-Asia-Pacific: $2.833 billion, up 22%
-Europe, Africa and the Middle East: $2.751 billion, up 38%
-Latin America: $1.151 billion, up 39%
Management offered robust but I believe somewhat cautious guidance for 2018, and the Street continues to raise its consensus estimates despite the recent weakness in the share price. They’re looking for $9.15 a share this year, up from expectations of just $7.92 three months ago.
And looking ahead to 2019, consensus is for $10.59 a share on the bottom line, up from $9.24 three months ago.
Upside Potential for Caterpillar Stock Remains Great
CAT was under pressure even before President Donald Trump officially brought up the idea of stopping cheap Chinese metals from pressuring American metal companies — both directly and directly. Looking at the chart below, you can see that it touched a double bottom on March 2. Since then it has moved into a pennant formation — a large move followed by consolidation with converging trend lines.
Still, management remains very bullish in part to a “more level playing field with non-U.S. competitions.” With the shares currently changing hands at a PEG ratio of only 0.8, I think CAT has potential to rally to $190 or higher over the next 12 months.
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