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Caterpillar Inc. (CAT) Is Still Not a Buy

In the international markets, another major competitor of Caterpillar is Komatsu from Japan. Though, Caterpillar has a much higher market share but Komatsu has performed very well in recent years. Komatsu expects demand from the emerging markets to recover this year, driven by stimulus spending. Moreover, the Yen’s slide in the recent months will also help the company to be more competitive. Also the company has no excess inventory or stockpile issues. This will also help the company see an immediate earnings improvement once the demand recovers. Overall, Komatsu business has remained stable —  it might not be as well-established as Caterpillar but has all the potential to be more competitive and produce better sales growth and profit margins ahead.

Guidance

Finally, Caterpillar provided an extremely wide 2013 EPS guidance of $7 to $9 per share, with revenue ranging from $60-$68 billion. The forecast does look quite vague, but with all of the uncertainty in the global economy today, that seems like a fair estimate.

Stock Performance and Dividend

The global economic uncertainty led to a stagnant price action in the Caterpillar’s stock price last year. For all of 2012, shares gave a return of only 4.5% to its shareholders. However, Caterpillar pays a dividend that has grown rapidly since it was first started. Caterpillar also increased its dividend payout again in 2012 from $1.84 to $2.08. The increased payout is still less than 25% of its overall earnings, indicating that future increases in dividend are likely as it will be very manageable for the company. The rapid dividend increase over the last few years has given shareholders something to cheer about amidst the lackluster stock performance.

The article This Equipment Maker Is Still Not a Buy originally appeared on Fool.com and is written by Nauman Aly.

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