Caterpillar Inc (CAT) on Monday surged by 5.91%, thanks to the coronavirus vaccine news announced earlier on the day as the persistence of macroeconomic instability hurt the company’s business much. But company’s shares, despite adverse situation, have gained +62.69% over the past six months while the Construction and Mining industry rose by +54.2%.
Although, shares of producer of heavy machinery were struck by COVID-19, but damages have already been recovered. But the coronavirus pandemic is still a strong negative factor for Caterpillar as its customers face a freeze in operations and uncertainty, even in the medium term. For businesses and dealers which incur substantial amounts associated with the procurement of costly construction, mining, utilities, oil and gas and industrial machinery, these are essential factors. Thus, stability and predictability of market conditions are of great importance for targeted caterpillar markets, which is not possible in the presence of COVID-19.
Caterpillar sells most of its goods to distributors who tend to limit sales of new equipment in such situations, selling off inventory. Thus, the sector of Caterpillar is cyclical that slows down rapidly in a recession and increases quickly in a recovery period as inventory is replenished by dealers.
For some investors, however, Caterpillar is not losing its appeal. The reality is that Caterpillar is a so-called dividend aristocrat, that is, for several years in a row, it pays dividends. Caterpillar does not plan to break this 27-year trend and a rise in dividend payments has recently been announced.
In the current situation, especially after vaccine announcement, analysts are in believes that a recovering manufacturing sector, improved North American residential construction, strong construction demand in China, and resumption of spending at miners hold promise for the company.
For the Q3 2020, Caterpillar posted analysts-beating earnings per share and revenues but both were on downtrend compared to year over year indicators as overall demand remained weak amid the COVID-19 pandemic. For the fourth quarter the company anticipates demand to remain weak but at improved levels than the third quarter. Company’s cost reduction efforts will sustain margins in this scenario with further support of strong liquidity position, investments in expanded offerings and services and digital initiatives which will be fueling the growth up.