TLDR
- Caterpillar (CAT) stock fell as much as 10% in premarket trading Thursday despite a third-quarter earnings beat.
- Q3 earnings per share came in at $7.20 on sales of $20.7 billion, ahead of the $7.06 Wall Street expected.
- The company only maintained its full-year guidance.
- Backlog hit a record $72.1 billion at the end of the second quarter, up $34.6 billion from a year ago.
- Worries over debt-driven AI spending weighed on AI-linked stocks before the open.
Caterpillar (CAT) stock fell as much as 10% in premarket trading Thursday after the company beat third-quarter earnings estimates. The stock had entered the week below $690.
Earnings per share came in at $7.20 on sales of $20.7 billion. Wall Street was looking for $7.06 per share on $20.8 billion.
A year ago, Caterpillar earned $4.95 per share on $17.6 billion in sales. Revenue rose 17% to $20.68 billion, according to Investing.com.
Operating profit margin climbed to 20.4% from 17.3% a year earlier. Adjusted EPS of $7.20 also topped the $7.10 Bloomberg forecast.
So why the drop? Caterpillar only maintained its full-year guidance. A beat with no raise was not enough for a stock priced for growth.
Why Investors Pushed Back
Reports put the early decline between 7% and 10%. Either way, it was a steep move for a stock that was up 25% year to date through midday Wednesday.
That put it about 12 percentage points ahead of the S&P 500. The bar was set high.
AI-linked stocks were also weak before the open. Results from several megacap tech firms revived worries about debt-driven spending on data centers and chips.
Caterpillar’s power business sits right in that trade. Demand for power-generation equipment from AI data centers has driven much of its growth.
Valuation has been a sticking point too. The stock traded at about 23 times expected earnings, up from about 17 a year ago.
In late June, the multiple was near 39 times, with the stock above $1,000. It has slid since then as AI fears and interest rates rose.
Power Business and Backlog
Revenue at the machinery, power and energy unit rose 18% to $19.65 billion. That was roughly in line with Bloomberg consensus.
Backlog reached a record $72.1 billion at the end of the second quarter. That is up $34.6 billion from a year earlier.
Raymond James analyst Tim Thein pointed to political scrutiny and credit worries in the AI power space. Still, he said dealer feedback shows strong orders, especially for large gas engines.
Thein rates the stock Market Perform, which is essentially a Hold, with no price target. Higher rates are another concern, since they can raise financing costs for big construction projects.
“Our third-quarter results reflect the durability of our end markets, with strong order rates and a record backlog,” said Chairman and CEO Joe Creed. The stock was still falling in early trading Thursday.
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