Construction and mining equipment dealer Caterpillar Inc. (CAT) has received a five-year contract worth $641.2 million from the Department of Defense (DOD) to manufacture 621G wheeled tractor scrapers. This contract win represents the company’s largest single award received from the U.S. DOD in recent years.
 
The contract is extendable by another five years. The order may require Caterpillar to provide up to 909 wheeled tractor scrapers if the contract runs for 10 years, including the extension.
 
Caterpillar will manufacture these tractor scrapers at its Decatur, Illinois facility. The machines will be used by the U.S. Marine Corps and the U.S. Army along with other key components of Cat equipment in construction engineering operations worldwide. Construction engineering operations include construction of roads and airfields and other jobs requiring large amounts of dirt to be moved quickly.
 
The U.S. Marine Corps and U.S. Army will provide specifications including lift and tie-down provisions to allow military transportation and keyless engine start.
 
Caterpillar reported a robust second quarter driven by improved demand across all regions, particularly in developing economies. Total equipment revenue (comprising machinery and engines sales) increased 34% year over year in the second quarter of 2010. We expect major contract wins, like the current DOD order, to help the company to sustain its level of growth going forward.
 
The company affirmed in August its revenue goal of $55 to $60 billion and earnings target of $8 to $10 per share for fiscal 2012.
 
We maintain our “Neutral” recommendation on Caterpillar. The quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates upward directional pressure on the shares over the near term.
 
Based in Peoria, Illinois, Caterpillar is a manufacturer and seller of construction and mining equipment, industrial gas turbines and diesel and natural gas engines to consumers worldwide.
 
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