Caterpillar (CAT) & Air Products (APD): Growth And Income Stocks

Caterpillar (NYSE:CAT) , a Zacks Rank #2 (Buy) had two big reports published recently, its December sales data, and its Q4 17 earnings announcement. The December sales numbers were extremely impressive, even after strong data in the previous two months. All of the company’s segments saw year over year sales growth; machine retail sales +34%, Transportation +10%, Oil & Gas +35%, Industrial +21%, Power & Generation +1%, and Construction +31%.

The video presentation breaks down the numbers even more in the PP slide presentation.

Shortly after the December sales data was released, the company announced Q4 17 results where they easily beat both the Zacks consensus earnings and revenue estimates. All segments of the company exceeded expectations even after these expectations were lifted before the earnings announcement. The report had several key items; revenues rose by +6% YoY, profits improved by +219% YoY, and profit before income taxes grew by +9%.

To add to the positive news, management also issued FY 2018 EPS guidance in a range of $8.25-9.25, well above the Zacks consensus estimate of $8.11. Further, management is forecasting for sales and margins to continue to grow in all segment for the entirety of 2018. Lastly, Caterpillar commented that the new tax reform plan would drop its effective tax rate to 24%, and it will be a long term positive for the company as it gives it more level playing field with non-U.S. competitors.

As you can see in the table below, we have unanimous agreement of earnings estimates moving in the positive for Q1 18, Q2 18, FY 18 and FY 19.

Also, due to the strong December sales data, positive earnings report, and increased future EPS guidance, earnings estimates for the next two quarters and two years have been positively revised.

The company currently pays a +1.9% annual dividend yield, and there is a strong potential that the company might be announcing a stock repurchase program in the second half of 2018.

Lastly, Caterpillar is expected to benefit greatly from the proposed $1.7 trillion U.S. infrastructure plan proposed by President Trump at the State of the Union. This would be a 10 year project that would positively impact all segments of the company.

Air Products (NYSE:APD) , a Zacks Rank #2 (Buy), also recently reported earnings results where they too easily beat both the Zacks consensus earnings and revenue estimates. The report showed that revenues improved by +17.7%, volumes were up +13%, and pricing increased by +2%. All three gas segments saw increases in total volume.

On a segment basis, sales improved in each segment; Americas +5% due to higher volumes, and strong hydrogen demand. EMEA +29%, with volumes rising by +17%, mostly due to its new hydrogen plant in India. Asia +47% due to new plants, strong merchant business, and increased pricing.

Air Products also has the best balance sheet in the industry which has enabled them to make several recent key acquisitions in China, India, and Korea.

Due to the strong earnings report, and high expectations for 2018, management issued upside guidance for Q2 18, and increased FY EPS guidance as well. Now APD expects Q2 18 EPS in a range of $1.65-1.70 per share, just above the Zacks consensus estimate of $1.67. For FY 18, management expects EPS to be in a range of $7.15-7.35 per share, well above the previous Zacks consensus estimate of $7.00.

This news caused analysts to increase earnings estimates for Q2 18, Q3 18, FY 18, and FY 19, as you can see in the table below.

The company also pays a solid +2.26% annual dividend, and commented that they would invest in strategic growth opportunities. Lastly, the infrastructure plan would also help APD over the next decade if the plan is voted through Congress.

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