Caterpillar (NYSE: CAT) is one of those great American brands; that has been long considered a very safe value investment. The most recent financial numbers; those for March 31, 2016, prove that may no longer be the case.
The earnings report proves that the heavy-equipment maker has some serious problems. The biggest of these is that it’s revenues are in freefall; during first quarter 2016, Cat’s revenues shrank by $3.24 billion. During the 12 months that ended on March 31, 2016, Caterpillar’s revenues fell by $10.88 billion. Caterpillar reported revenues of $54.65 billion on in March 2015; that figure fell to $47.01 billion in in December 2015, and $43.77 billion in March 2016.
Not surprisingly, Caterpillar’s net income was collapsing as its revenues. Caterpillar reported a net income of $4.018 billion in March 2015; that fell to $2.236 billion in December 2015, and $1.26 billion in March 2016. If the revenue and income collapse continues, Cat will be reporting losses sometime this year.
Is Caterpillar Making Money?
Strangely enough, Caterpillar has a lot of float despite its revenue and income collapse. The company reported $5.886 billion in cash and short-term investments and $5.894 billion in cash from operations on March 31, 2016.
Although that float is quickly disappearing, Caterpillar reported $7.43 billion in cash from operations in March 2015 and $6.675 billion in cash from operations in December 2015. The company has a long way to go before the float vanishes but it looks as if the float is unsustainable.
The collapse in commodities prices; and mining income, and the end of China’s construction boom seem have to finally caught up with Caterpillar. The revenue collapse shows us that the company’s market is disappearing; and taking away the company’s cash with it.
Expect Caterpillar’s Share Price to Collapse
Caterpillar is no longer a value investment; instead it was grossly overpriced at the $77.37 the shares were trading at on July 8, 2016. Despite the cash and float, Cat’s shares will take a major tumble if the next earnings report is as bad as the last one.
The revenue and income declines indicate that the company’s 4.11% dividend yield and 7.84% return on equity are not sustainable. Instead expect both those numbers and Caterpillar’s share price to fall dramatically.
Why You Should Short Caterpillar
Investors should stay away from Caterpillar unless you are looking for something to short. Its price will take a major fall after the next earning report, and that price will not recover for several years.
The revenue and income figures prove that Caterpillar’s sales are collapsing because the market for its products; earth-moving machines, simply is not there. Expect this American icon to struggle for several years, until a global recovery begins.
Since I do not expect a global recovery for several years, I expect Cat’s stock to be a poor investment for years to come. Unless you’re planning to short, stay away from Caterpillar until it hits bottom.