Caterpillar Stock Set for Another Post-Earnings Drop

Today could mark CAT's sixth straight negative earnings reaction

Jul 24, 2019 at 9:18 AM
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Caterpillar Inc. (NYSE:CAT) stock is down 5% in electronic trading, after the big-cap construction concern reported adjusted second-quarter earnings of $2.83 per share. Not only was this below the consensus estimate, but it was down 4.7% from its year-ago profit, on slowing demand in China. Revenue of $14.43 billion fell just shy of expectations, while CAT also lowered its full-year profit forecast.

Today's pre-market downside has CAT stock set to open near the $131.50 per-share mark -- below its 200-day moving average. This trendline cushioned a pullback attempt earlier this month, though the shares spent most of May and June trading below it. This just underscores a choppy year for the equity, which was up 8.7% so far in 2019 through last night's close at $138.10.

A negative earnings reaction would just be more of the same for the Dow stock, which has closed lower the day after earnings in each of the past five quarters. Options traders have been bracing for a repeat of history, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CAT's 10-day put/call volume ratio of 0.97 ranks in the 87th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

Analysts are bearish toward CAT, too, with the majority maintaining a "hold" or "strong sell" rating. There's still room for downgrades to come through, though, considering eight brokerages calling Caterpillar stock a "buy." Meanwhile, the average 12-month price target of $147.13 is a 6.5% premium to Tuesday's close.


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