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Is the construction sector set to benefit Caterpillar?

Although slightly stuttering, the signs from China are that Caterpillar is once again picking up the pace of growth.

Caterpillar machine
Source: Bloomberg

Caterpillar’s second quarter adjusted earnings per share are expected to fall from $1.61 to $1.515, even though sales are anticipated to rise from $13.24 billion to $14.461 billion.

Due to the weaker gross margins that Caterpillar is working under, the pre-tax profit is also called to fall from $1.34 billion to $1.306 billion.

Unlike previous quarters, the markets are not expecting restructuring and cost-cutting exercises to be the main reason for improvement within Caterpillar. The improving economic picture coming out of North America has seen increased demand for construction equipment. Asian demand has also improved, now that we have seen a more sustained period of growth in the Chinese economy, which has helped improve sentiment.

Caterpillar is once again looking to challenge its all-time highs of $116.94, set back in February 2012. This was a level that the shares twice tried to break and failed to achieve. Considering the run the shares have had, from $90 at the beginning of the year, it might be a little too much to hope that they will be able to set higher highs without a pause in momentum first.

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