Being a market leader in construction and mining equipment, we believe Caterpillar Inc. (CAT) will benefit immensely from the growing need for infrastructure development in both the developing and developed nations.
The government stimulus packages announced in various countries have allotted a substantial portion of the funds for infrastructure spending. The company is confident of capitalizing on the economic recovery and targets earnings of $8–$10 per share on sales of nearly $60 billion by 2012.
Caterpillar sees potential demand for its products across the markets, especially in China. According to the company, there has been an improvement in industrial production growth and increase in commercial and residential building sales in China. By 2012, the company aims to achieve sales of over $4 billion from China.
Furthermore, the company is expected to benefit from the implementation of Caterpillar Production System (CPS). By implementing the CPS, the company will transform its manufacturing systems to new standards of quality, speed and safety in the industry. Inventory management is a key element of the CPS.
The company reduced inventory by $1.6 billion in the first six months of 2009 and expects to reduce it by $3 billion in the full year. Implementation of CPS by 2010 is expected to improve the company’s long-term profitability.
We see a continued challenging backdrop for Caterpillar for the next couple of quarters. However, over the long-term, we expect the company to benefit immensely from the growing need for basic infrastructure globally.
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