Shares of Caterpillar (CAT) are under pressure Wednesday, falling about 4.25% to $132.26 after reporting second-quarter earnings.
Given the report, investors should feel lucky that the stock is only down this amount. Caterpillar reported second-quarter earnings of $2.83 per share, missing analysts’ estimates by 28 cents. Further, the company missed on revenue estimates, with sales of $14.43 billion coming up short by $40 million.
Albeit the revenue miss was light, but it does little to comfort investors when a company misses on both the top and bottom line. Management maintained its full-year earnings outlook range of $12.06 to $13.06 per share, but expects to come in at the lower end of the range.
Perhaps it’s not a disaster of a quarter, but it’s certainly disappointing for investors who were hoping for a possible breakout in Caterpillar stock. That said, shares now yield about 3.1% and trade at less than 11 times this year’s earnings, even taking the very bottom of management’s guidance. At the bottom of the range, it would still represent 7.5% year-over-year earnings growth.
On paper, those types of numbers at least warrant a further look.
Trading Caterpillar Stock
It’s not just Caterpillar that’s under pressure. Deere (DE) and Agco (AGCO) are both down on the day, too, albeit just 1.5% and 0.5%, respectively. Still, the disappointing results are weighing on the group.
The stock is trading much better than it could be, given the headline results. Caterpillar stock opened near $131 and proceeded to plunge below the 50-day and 200-day moving average. In doing so, it also fell below the 61.8% retracement at $130.13.
Shares then reversed off those lows and moved above the opening price. Now what?
On the upside, we need to see if CAT stock can repair some of this technical damage. It’s hard to imagine the stock trading aggressively higher on worse-than-expected results. But bulls have a case to make with the fundamentals still being attractive near these levels.
If it can regain upside momentum, first look to see if Caterpillar stock can reclaim the 20-day moving average. It’s important for the bull case that this moving average does not turn into resistance. Above this mark, and reclaiming short-term uptrend support (blue line) is the next task at hand. If it can, resistance near $138.50 to $140 is on the table.
On the downside, it’s preferred that the 61.8% retracement holds as support. However, $128 is the “must hold” level in my eyes. If CAT stock loses this mark, it will be below a key retracement level, as well as the 50-day and 200-day moving averages.
A close below $128 would justify longs exiting their position, and may even attract short-sellers to the name. As long as Caterpillar stays above its post-earnings low, investors can stick with the name.