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					Company Report
Global Industrial Infrastructure
October 20, 2009 | 14 Pages

CATERPILLAR, INC. (NYSE: CAT)
PROSPECTS IMPROVING FOR CAT IN VALUATION FULL; UPGRADE TO NEUTRAL 2010E, BUT
Rating:

RATING: NEUTRAL
Fiscal Year Ends Dec
Neutral $59.49 $64 $21.71-$57.74 $35,538.05 621.29 9,938.62 $1.68 2.82% $1.48 $1.96 N/A

Upgrading to Neutral from Sell. We are upgrading CAT to Neutral from Sell based on our belief that 1) the company will be well positioned for the eventual end market demand recovery with the worst most likely over 2) the risk at CAT Finance no longer appears to be meaningful 3) inventory restocking at dealers in FY10E should help sales and margins even if retail sales demand remains weak and 4) better than expected EPS power over the next several years. Clearly, we were wrong in our assessment of Cat Finance and underestimated the impact of CAT’s cost cutting and dealer restocking going into next year. Dealer inventories have decreased by $1.1B in 3Q09 and are expected to decrease by a further $0.5B-$0.9B in 4Q09E. Better Than Expected 3Q09 and Guidance Raised. CAT reported 3Q09 EPS of $0.64 vs. SA Estimate of $0.15 and Bloomberg Consensus of $0.05 on a (43%) organic revenue decline. Included in the 3Q09 EPS was a $139M tax benefit ($0.22) and $120M ($0.16) LIFO inventory decrement benefit. Ex items, CAT reported EPS of $0.26. CAT increased its 2009 guidance to $1.85 to $2.05, ex items from $1.15 to $2.25, effectively raising the midpoint of guidance by $0.25. CAT also gave preliminary revenue outlook for 2010 of an increase of 10% - 25%. Raising Price Target to $64 from $36 and EPS Estimates. Our new Price Target of $64 is based on the midpoint of our FY12E EPS range for CAT of $5.50-$6.00 ($5.75) and assumes shares trade at 11.1X, or its historic FY1 multiple discounted back. While the stock is not inexpensive, we do believe that the stock will remain strong. We are also raising our FY09E EPS to $2.10 from $1.61 and our FY10E to $3.00 from $2.00, and initiating a FY11E of $4.15.

Price: Price Target: 52-wk Range: Market Capitalization (M): Shares Outstanding (M): Avg. Daily Vol. (000): Dividend: Dividend Yield: Consensus EPS Current Year: Consensus EPS Next Year: Est. 3-yr. EPS Growth:

Lawrence T. De Maria, CFA (212) 338-4704
ldemaria@sterneagee.com

Nicholas P. Heymann (212) 338-4703
nheymann@sterneagee.com

Samuel H. Eisner (212) 338-4705
seisner@sterneagee.com

FYE Dec

2008A

Earnings Summary 2009E EPS & P/E Summary 2009E 2009 Previous 2008 Previous $0.39 -$0.39 -$0.72 $0.72 -$0.15 $0.64 -$0.35 $0.35 -$1.61 $2.10 --28.3

2010E

EPS:

Q1 Q2 Q3 Q4 Full Year

P/E Ratio:

2008A $1.45 $1.74 $1.39 $1.08 $5.67 10.5

2010E ----$3.00 19.8

2010 Previous ----$2.00 --

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section.

CATERPILLAR, INC. (NYSE: CAT)
Quarterly Items. Revenue declined 44% y/y (43% organically) led by a 52% decline at Machinery and a 35% decline at Engines. Revenue declines primarily resulted from significant volume declines marginally offset by 2% of positive pricing. Margins declined 520bps to 3.8% from 9.0% in 3Q08 due primarily due to operating losses of ($124M) at Machinery. Significant volume declines were the main cause of the margin degradation. Additionally, EPS was aided by a $139M ($0.22) tax benefit (-55% tax rate) vs. a 31.4% tax rate in 3Q08. Furthermore, a $120M ($0.16) LIFO inventory decrement benefit aided EPS. CAT believes credit quality will be at or near peak by year-end FY09. YTD annualized losses are 0.90%, up from 0.82% in 2Q09. Bad debt write-offs were $65M, up from $55M in 2Q09. Valuation & EPS Power Though we have a very hard time believing that CAT will achieve its $8-$10 guidance for 2012, we do recognize that over the next several years CAT has incrementally improved its EPS power due to significant cost cutting and in turn, we may have been too pessimistic on the long term story. In 2010E, CAT will be able to restock dealer inventory (highly profitable) and start manufacturing again even if retail sales demand remains flat. (We expect a pickup in residential construction, but commercial construction to come under pressure). End market demand should start to improve by 2011E at which point we are now estimating EPS of $4.15 and should all cylinders be firing in 2012E, EPS could exceed $5.50. We previously believed $4.00 in EPS were more likely in 2012E By and large, we do not expect a large increase in end market demand until 2011E. Mining (~15-20%) demand should be stabilizing now and can increase by 2H10E; residential construction (~5%-10%) should be a source of growth next year followed by commercial construction (~15%) in 2011E. Heavy Infrastructure (~30%), while weak in the US, should accelerate to upside over the next several years in Emerging Markets. End market demand for Electric Power (~15%) and Oil and Gas (~15%) should weaken next year but could strengthen again in 2012E. Emerging market sales (~40% of sales) should begin to recover next year, where they haven’t already, and should provide strength through the cycle. As the charts below show, CAT has traded at an average P/E multiple of 16.7X FY1 and 14X FY2. Our new target of $64 (up from $36) assumes shares trade at 11.1X the midpoint of our 2012E EPS range of $5.50-$6.00. (Alternatively, you can look at our FY11E estimate of $4.15 and use its historic 14X to value CAT at $58 or 20X our FY10E of $3.00 to yield $60). Thus while we can appreciate CAT’s prospects going forward we believe it is fully valued at current levels. With the improved EPS power, corporate execution and improved economic prospects, it is clearly not prudent to rate CAT shares Sell. At this point, we believe the stock will remain strong, perhaps through 4Q09E EPS before pausing due to reasons mentioned below, for “Early Cycle” Industrial companies. To be a Buy Rated Stock now, we would need confidence that CAT’s $8-$10 guidance for 2012 is achievable and the Global Economy is “in sync”, and we will have to wait some time for that. Additionally, as we have outlined below, there are several Macro “landmines” that CAT and other Industrial companies will have to navigate through starting as early as next year, which could dampen prospects of a recovery and make “early cycle” Industrials less attractive. For Substantial upside from current levels to occur, confidence in 2012E EPS of $5.50$6.00 will only begin to be discounted in 2H10 ($75-$82/share). In order for confidence to emerge in 2012E EPS of $5.75 in a $5.50-$6.00 range, we feel the following will have to occur for CAT over the next 6-12 months: 1) Residential Construction – Will have to continue to rebound 30%-40% in NA. 2) Com’l Construction – Visibility for rebound in NA com’l construction will have to emerge for 2011 and Europe for 2012.

October 20, 2009

Page 2

CATERPILLAR, INC. (NYSE: CAT)
3) Mining – Orders for new mining equipment have to start 2H10, with deliveries reaccelerating in 2011. If CAT’s earnings are to significantly expand in 2012, the following would likely have to occur between now and 2H10: A. Residential Construction Equipment – surplus inventory has to decline at auction and dealer lots; production to fill dealer lots accelerates 2H10. B. Com’l Construction – Surplus inventory has to begin to decline, pricing has to firm at auction and dealer lots, increasing confidence production will initially increase in 2011. C. Mining – Commodity prices have to remain high; channel inventories are low, so new orders will almost certainly enable increased production to commence by late 2010/early 2011.

October 20, 2009

Page 3

CATERPILLAR, INC. (NYSE: CAT)

October 20, 2009

Valuation Charts
Figure 1: CAT FY1 10YR P/E & Relative P/E
Caterpillar Inc. (CAT)
CAT 149123101 2180201 NYSE Common stock 29-Oct-1999 to 20-Oct-2009 (Monthly) Price to Earnings - FY1 Average: 16.7 High: 42.6 Low: 6.4 Latest: 42.6 45 40 35 30 25

Source: FactSet Estimates

Figure 2: CAT FY2 10YR P/E & Relative P/E

Source: FactSet Estimates

20 15 10 5 0 Average: 0.95 High: 2.33 Low: 0.42 Latest: 2.33

Price to Earnings - FY1 - Relative to S&P 500

2.5

2

1.5

1

0.5

0 '00
Data So urce: FactSet Estim ates,

'01

'02

'03

'04

'05

'06

'07

'08

'09
©FactS et Research S ystems

Figure 2: CAT FY2 10YR P/E & Relative P/E
Caterpillar Inc. (CAT)
CAT 149123101 2180201 NYSE Common stock 29-Oct-1999 to 20-Oct-2009 (Monthly) P rice to Earnings - FY2 Average: 13.6 High: 30.3 Low: 7.5 Latest: 30.3 35

30

25

20

15

10

5 Average: 0.89 High: 2.09 Low: 0.41 Latest: 2.09 P rice to Earnings - FY2 - Relative to S&P 500 2.2 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 '00
Data Sou rce: Fa ctSet Estim a tes,

'01

'02

'03

'04

'05

'06

'07

'08

'09
©FactS et Resea rch Systems

Source: FactSet Estimates

Page 4

CATERPILLAR, INC. (NYSE: CAT)
Eventually the Sun Will Set But The Thermal Is Likely Not Over. At some point over the next 12-24 months we believe that higher interest rates and the prospects of a weak demand recovery will negatively impact highly cyclical industrial companies such as CAT. That said, we will confront those issues as visibility improves. For now, the prospects of increased sales and better operating performance near term and high expectations of normalized EPS power longer term outweigh the negatives. For its part, CAT is doing a good job managing the downturn. The challenge for investors in more economically-sensitive industrial cyclical stocks will be to know when to anticipate the arrival of likely tempered enthusiasm as several critical events begin to emerge that will almost certainly impact global GDP growth beginning perhaps about mid-2H10, including: 1. Rising state and local tax rates in NA – In 2009, state and local municipal governments will receive approximately $350-$375 billion from the US 2009 Stimulus Program to sustain local services. This transfer is enabling local governments to sustain services rather than increase local government spending for vital community services. Beginning in 2010, these funds will have to be replaced by higher taxes, as local and state governments are not allowed to deficit finance their operating budgets. This is likely to lead to slower economic growth in NA as consumers experience a higher tax burden and if anything, local services face potential partial curtailment. Higher interest rates in NA and Europe – At some point, the Federal Reserve will begin to raise interest rates. While the catalysts behind such a move and its timing have been extensively debated, once interest rates begin to climb, Federal Reserve officials have repeatedly warned that the rate of increase is likely to be steeper than the last interest rate cycle earlier this decade. Such an increase is likely to certainly make assumptions about rebounding construction (both Residential in 2010 and Non-Residential in 2011) be viewed in a more conditional manner. Higher global manufacturing input costs – The rapid increase in commodities that began in late 4Q08 and which as accelerated throughout 2009 is likely to begin to squeeze sharply improved operating margins which are expected to benefit from exceptionally pervasive cost restructuring (2H09 and 1H10) and initial distribution channel replenishment (2H09). With industrial aggregate demand unlikely to have recovered enough to enable higher prices to cover higher input costs, the best offset is likely to be increasingly favorable FX (both translation and operational), assuming the USD continues to remain under pressure. Positive impact of a weaker USD for US manufacturers – The USD has declined approximately 15% from its recent highs achieved in 2Q09. Continued extensive US Government budget deficits, lack of tangible job creation from the 2009 US Stimulus Program and limited actions to implement Financial Reform Legislation are likely to continue to pressure the USD. Clearly, this could be a significantly favorable factor for many global industrial infrastructure companies but any analysis must evaluate the impact of a weaker USD on a company’s operations as well as any potential foreign currency translation benefit.

October 20, 2009

2.

3.

4.

Page 5

CATERPILLAR, INC. (NYSE: CAT)
Figure 3: Industrial Cyclical “Indian Summer”

October 20, 2009

Source: Sterne, Agee & Leach estimates

Industrial Cyclical "Indian Summer"…4Q09?
High
GDP Sensitive Industrials BDK, MMM

Low

Sensitivity to Absolute Global GDP

Economically Cyclical Industrials

CAT, ETN, ROK

GDP Interest Rates
Defensive Industrials TYC, ITT, UTX Redeploy YE2009 Redeploy Post-3Q09

Book-to-Bill Sensitive Industrials

ABB, SIE

Book-to-Bill Commodity Sensitive Industrials

Mining, E&C

Low 4Q09 1Q10 2Q10 3Q10

High

Easy

Y/Y Comparisons

Hard

Page 6

Expected 12 Month Relative Performance

CATERPILLAR, INC. (NYSE: CAT)

October 20, 2009

Sterne Agee Flash Analytics (SAFA) CAT 3Q09
Drivers
Revenue Drivers Org Rev {Tot Revs – (Acq + FX)} (43%) (44%) Total Rev – (0% Acq – 1% FX) Machinery sales declined (30%) in APAC and (50%) in LATAM, accelerating from declines in 2Q09. Engine sales declined (22%) and (6%), respectively. Engine sales declines improved sequentially. Pricing realization of $227M helping to marginally benefit revenues which was completely offset by volume declines. Significant weakness in global capital goods markets as customers have delayed purchases until end market demand returns. Machinery sales continue to fall as global Capex further wanes. Margins declined 520bps to 3.8% from 9.0% in 3Q08 due primarily to significantly lower volumes. Machinery profits declined (127%) to an operating loss of ($124M) while Engines declined (40%) to $370M. (15.8%) decremental margins due primarily to significant volume contraction at Machinery that lead an operating loss coupled with a (43%) organic revenue decline. $2.973B in 9M09 vs. $836M in 9M08, primarily due to a (39%) reduction in Capex. $81M in pre-tax restructuring costs in 3Q09 related to consolidation of CAT Japan.

Current Period

Comment

Emerging Markets

Weak

Pricing > Cost

Moderate

Cyclical vs. Secular

Cyclical

Operating Drivers Margin Performance Weaker

Decremental Margins

Negative

Free Cash Flow

Strong

Restructuring Below the Line/Non-Operating Tax Rate Corporate Share Count One Time Gain

$0.03-$0.04

Tailwind Headwind Headwind Tailwind

$139M tax benefit in 3Q09 vs. 31.4% tax rate in 3Q08. EPS impact of $0.35. ($61M) in 3Q09 vs. ($51M) in 3Q08. 635.5M in 3Q09 vs. 624.8M in 3Q08. EPS impact of ($0.01). $120M ($0.16) of LIFO inventory decrement benefits.

Summary Conclusion: We are upgrading CAT to Neutral from Sell based on our belief that 1) the company will be well positioned for the eventual end market demand recovery with the worst most likely over 2) the risk at CAT Finance no longer appears to be meaningful 3) inventory restocking at dealers in FY10E should help sales and margins even if retail sales demand remains weak and 4) better than expected EPS power over the next several years.

Page 7

CATERPILLAR, INC. (NYSE: CAT)

October 20, 2009

Caterpillar, Inc. Annual & Quarterly Income Statement

Caterpillar—2004-2010E Annual Sales and Earnings Model
Dollars In Millions Revenues Mac hinery Engines Financ ial Produc ts Total Revenue

2004
18,844 9,492 1,970 $30,306

% Change
37.8% 28.8% 14.9% 33.1%

2005
22,931 11,075 2,333 $36,339

% Change
21.7% 16.7% 18.4% 19.9%

2006
26,062 12,807 2,648 $41,517

% Change
13.7% 15.6% 13.5% 14.2%

2007
28,359 13,603 2,996 $44,958

% Change
8.8% 6.2% 13.1% 8.3%

2008
31,804 16,240 3,280 $51,324

% Change
12.1% 19.4% 9.5% 14.2%

2009E
17,527 12,097 2,851 $32,475

% Chg -44.9% -25.5% -13.1% -36.7%

2010E
20,523 11,917 3,081 35,520

% Chg 17.1% -1.5% 8.1% 9.4%

2011E
25,111 12,228 3,317 40,655

% Chg 22.4% 2.6% 7.7% 14.5%

Operating Margins Machinery Engines Financial Products Total Operating Margin Operating Profit: Machinery Engines Financial Products Corporate Expense Total Operating Profit Net Interest Expense Other - Net Earnings From Continuing Ops Tax Tax Rate Net Rep Earnings From Cont Ops Equity In Profit (Loss) Of Affiliates 1,756 589 470 (131) $2,684 (230) 253 2,707 731 27.0% 1,976 59 2,035 $2.88 707 85.2% 83.9% 83.1% 195.0% 2,854 $4.03 707 40.2% 40.3% 0.0% 377.4% 83.3% 83.7% 60.7% 46.5% 221.9% 19.6% 2,431 1,071 531 (249) $3,784 (260) 377 3,901 1,120 28.7% 2,781 73 40.7% 23.7% 3,537 $5.17 684 23.9% 28.2% -3.5% 49.0% 44.1% 41.0% 38.4% 81.8% 13.0% 3,028 1,629 670 (406) $4,921 (274) 214 4,861 1,405 28.9% 3,456 81 24.3% 11.0% 3,541 $5.37 660 0.1% 3.7% -3.6% -43.2% 24.6% 30.0% 24.6% 52.1% 26.2% 2,758 1,826 690 (353) $4,921 (288) 320 4,953 1,485 30.0% 3,468 73 0.3% -9.9% 3,557 $5.67 627 0.5% 5.7% -5.2% 49.5% 1.9% 0.0% -8.9% 12.1% 3.0% 1,803 2,319 579 (253) $4,448 (274) 299 4,473 953 21.3% 3,520 37 1.5% -49.3% -6.6% -9.7% -9.6% -34.6% 27.0% -16.1% (1,030) 1,645 456 (277) $794 (401) 358 751 (81) -10.8% 833 53 424 1,310 $2.10 623 -63.2% -62.9% -3.5% -76.3% 43.2% 1,907 $3.00 636 4.2% 42.8% 2,638 $4.15 636 4.2% 8.1% 19.7% -83.2% -82.1% -157.1% -29.0% -21.3% 1,231 1,490 416 (290) $2,847 (450) 300 2,697 850 31.5% 1,847 60 4.0% 12.3% 24.8% 8.8% 258.3% -219.6% -9.5% -8.8% 2,134 1,651 464 (300) $3,949 (500) 300 3,749 1,181 31.5% 2,568 70 4.0% 12.3% 24.8% 8.8% 38.7% 73.3% 10.8% 11.7% 9.3% 6.2% 23.9% 8.9% 10.6% 9.7% 22.8% 10.4% 11.6% 12.7% 25.3% 11.9% 9.7% 13.4% 23.0% 10.9% 5.7% 14.3% 17.7% 8.7% -5.9% 13.6% 16.0% 2.4% 6.0% 12.5% 13.5% 8.0% 8.5% 13.5% 14.0% 9.7%

After Tax Redundancy Charge
Net Earnings Diluted EPS From Cont Ops Diluted Wght Shares Outstanding

Source: Company reports and Sterne, Agee & Leach, Inc. estimates.

Page 8

CATERPILLAR, INC. (NYSE: CAT)

October 20, 2009

Caterpillar 2008E-2009E Quarterly Sales and Earnings Model Dollars In M illions Revenue Machinery Engines Financial Products Total Revenues 1Q09A 5,342 3,168 715 9,225 1Q08A 7,548 3,431 817 11,796 % change -29.2% -7.7% -12.5% -21.8% 2Q09A 4,338 2,916 721 7,975 2Q08A 8,530 4,267 827 13,624 % change -49.1% -31.7% -12.8% -41.5% 3Q09A 3,904 2,679 715 7,298 3Q08A 8,051 4,097 833 12,981 % change -51.5% -34.6% -14.2% -43.8% 4Q09E 3,943 3,334 700 7,977 4Q08A 7,675 4,445 803 12,923 % change -48.6% -25.0% -12.8% -38.3% 2009E 17,527 12,097 2,851 32,475 2008A 31,804 16,240 3,280 51,324 % change -44.9% -25.5% -13.1% -36.7%

Operating Margins M achinery Engines Financial Products Total Operating Margin Operating Profit: M achinery Engines Financial Products Corporate Expense Total Operating Profit (508) 297 99 (63) (175) 626 554 195 (82) 1,293 -113.5% -181.2% -46.4% -49.2% (252) 555 127 (83) 347 719 711 166 (71) 1,525 -77.2% -135.0% -21.9% -23.5% (124) 370 92 (61) 277 464 616 144 (51) 1,173 -76.4% -126.7% -39.9% -36.1% (146) 423 138 (70) 345 (6) 438 74 (49) 457 -24.4% 2331.4% -3.3% 86.4% (1,030) 1,645 456 (277) 794 1,803 2,319 579 (253) 4,448 -82.1% -157.1% -29.0% -21.3% -9.5% 9.4% 13.8% -1.9% 8.3% 16.1% 23.9% 11.0% -5.8% 19.0% 17.6% 4.4% 8.4% 16.7% 20.1% 11.2% -3.2% 13.8% 12.9% 3.8% 5.8% 15.0% 17.3% 9.0% -3.7% 12.7% 12.5% 4.3% -0.1% 9.9% 9.2% 3.5% -5.9% 13.6% 16.0% 2.4% 5.7% 14.3% 17.7% 8.7%

Interest Expense Other income (expense) Pretax Income Tax Tax Rate (%) Net Rep Earnings From Cont Op Adjustments Equity in profit (loss) of uncosolidated affiliated cos After Tax Redundancy Charge Adjusted Net Income After Tax Restructuring Total Reported Earnings Incl Restr. Diluted EPS Ex Unusual Items Total Reported EPS Including Restructuring Diluted Weighted Shares Outstanding Source: Company Data and Sterne, Agee & Leach, Inc. estimates.

(101) 64 (212) (80) 37.7% (132.0) 20 347.4 235.4 (347.4) (112.0) $0.39 ($0.19) 602.1

(74) 112 1,331 420 31.6% 911.0 11 0 922.0 0.0 911.0 $1.45 $1.43 638

36.5% -42.9% -115.9%

(109) 163 401 40 10.0%

(70) 75 1,530 434 28.4% 1,096.0 10 0 1,106.0 0.0 1,096.0 $1.74 $1.73 636

55.7% 117.3% -73.8%

(91) 66 252 (139) -55.2%

(59) 138 1,252 395 31.5% 857.0 11 0 868.0 0.0 857.0 $1.39 $1.37 625

54.2% -52.2% -79.9%

(100.0) 65 310.5 98 31.5%

(71) (26) 360.0 (296) -82.2% 656.0 5 0 661.0 0.0 656.0 $1.08 $1.08 611

40.8% -350.0% -13.8%

(401) 358 751.5 (81) -10.8%

(274) 299 4,473 953 21.3% 3,520 37 0 3,557.0 0.0 3,520.0 $5.66 5.60 627.2

46.4% 19.7% -83.2%

-114.5%

361.0 10 76.5

-67.1%

391.0 13 0.0

-54.4%

212.7 10 0.0

-67.6%

832.7 53 424

-76.3%

-74.5%

447.5 (76.5) 371.0

-59.5%

404.0 0.0 404.0

-53.5%

222.7 0.0 222.7

-66.3%

1,309.6 (424.0) 885.7

-72.9%

$0.72 $0.60

-58.5%

$0.64 $0.64

-54.2%

$0.35 $0.35

-67.6%

$2.10 1.40

-62.9%

-5.6%

619.8

-2.5%

635.5

1.7%

635.5

4.1%

623

-0.6%

Source: Company reports and Sterne Agee estimates

Page 9

CATERPILLAR, INC. (NYSE: CAT)

October 20, 2009

APPENDIX SECTION
Company Description: Caterpillar Inc. (CAT), headquartered in Peoria, Illinois, is a global manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates in three business segments: 1) Machinery, 2) Engines, and 3) Financial Products. Caterpillar markets its products through distribution centers and one of the world's largest networks of independent dealers. IMPORTANT DISCLOSURES: Price Target Risks & Related Risk Factors:
The risks CAT include the company's inability to successfully capitalize on the global infrastructure spending boom and growth in construction, mining, and energy markets resulting from it, sensitivity to interest rates, effective supply chain management and increases in raw materials prices, and economic risk, including a possible US recession and the level of commercial construction.

Valuation Methodology:
Our Price target has increased to $64 (from $36 previously). Our target is based on our expected 2012E EPS range of $5.50-$6.00 and assumes shares trade at its historic 11.1X, or its historic 10 year average multiple discounted back. (Over the past 10 years CAT has averaged a 16.7X multiple). The Fundamental Assessment Review - FAR Score - is a proprietary metric developed by the Global Industrial Infrastructure team at Sterne, Agee & Leach, Inc in November 2007. The FAR Score measures a company's ability to create and sustain shareholder value. The FAR Score ranges from 1 (lowest) through 5 (highest) and is calculated by equally weighting performance and execution in the following 8 areas: Organic Sales Growth, Operating Profitability, Average Net ROTC, Acquisitions, Internal Growth Efficiency, Cash Return to Shareholders, Emerging Market Footprint, and Infrastructure Exposure. The FAR Score by itself does not determine a company's rating, but is one of the many fundamental and qualitative criteria used in analyzing, evaluating and recommending a company.

Regulation Analyst Certification:
I, Lawrence T. De Maria, CFA, hereby certify the views expressed in this research report accurately reflect my personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report. Sterne, Agee & Leach, Inc. Disclosure Legend as of October 20, 2009: Company Caterpillar, Inc. (CAT - NYSE): 1. 2. 3. 4. 5. 6. Disclosure(s) – See Below None

Sterne, Agee & Leach, Inc. makes a market in the shares of the subject company. Sterne, Agee & Leach, Inc. has, over the past 12 months, managed or co-managed a public securities offering or provided other investment banking services for the subject company. Sterne, Agee & Leach, Inc. has various security accounts open for the subject company. Sterne, Agee & Leach, Inc. provides administration for 401(k) plans for the subject company. Sterne Agee Financial Services, Inc. has clearing agreements with the subject company. The Sterne Agee analyst who has active coverage on this company owns a position in the subject company.

Sterne, Agee & Leach, Inc.’s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach, Inc.’s total revenues, a portion of which is generated by investment banking activities.

Definition of Investment Ratings:
BUY: NEUTRAL: SELL: RESTRICTED: We expect this stock to outperform the industry over the next 12 months. We expect this stock to perform in line with the industry over the next 12 months. We expect this stock to underperform the industry over the next 12 months. Restricted list requirements preclude comment.

Appendix Section, Page I

CATERPILLAR, INC. (NYSE: CAT)

October 20, 2009

Ratings Distribution:
Of the securities rated by Sterne, Agee & Leach, Inc., as of September 30, 2009, 36.7% had a BUY rating, 57.4% had a NEUTRAL rating, 5.9% had a SELL rating, and 0% was RESTRICTED. Within those ratings categories, 2.04% of the securities rated BUY, 1.94% rated NEUTRAL, 0% rated SELL, and 0% rated RESTRICTED received investment banking services from Sterne, Agee & Leach, Inc., within the 12 months preceding September 30, 2009.

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731.
Other Disclosures: Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein and may act as principal or agent to buy or sell such securities. Copyright © 2009 Sterne, Agee & Leach, Inc. All Rights Reserved. Sterne, Agee & Leach, Inc. disclosure price charts are updated within the first fifteen days of each new calendar quarter per FINRA regulations. Price charts for companies initiated upon in the current quarter, and rating and target price changes occurring in the current quarter, will not be displayed until the following quarter.

Price Chart(s):

Appendix Section, Page II

STERNE, AGEE & LEACH, INC.
Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the early years, our founders prominently established themselves in the financial securities industry in the southeastern United States. Today, we have expanded to serve all regions of the country. Sterne, Agee is headquartered in Birmingham, Alabama with offices in 22 states including Alabama, Arkansas, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Mississippi, Missouri, New Jersey, New York, North Carolina, Pennsylvania South Carolina, Tennessee, Texas, Virginia, and Wisconsin. Sterne Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee Financial Services, Inc.—www.sterneagee.com

EQUITY CAPITAL MARKETS ADMINISTRATION
Ryan Medo Robert Lake Managing Dir., Eq. Cap. Mkts. Vice President (205) 949-3623 (205) 949-3624 David Lee Yan Chao Chuck Carlisle Director, Equity Products Associate Sr. Portfolio Analyst (205) 949-3689 (205) 949-3622 (205) 949-3571

EQUITY RESEARCH
Robert Hoehn Director of Research (212) 338-4731

BASIC MATERIALS
Mark Connelly Ashish Gupta Jason Marcus Mng. Dir. Analyst Associate (212) 338-4712 (212) 338-4721 (212) 338-4746

FINANCIAL SERVICES (CONT.)
Matthew Kelley Mike I. Shafir Matthew Breese Edward D. Timmons Brett Rabatin, CFA Kenneth James Peyton Green Michael Lipman Mng. Dir. VP, Sr. Analyst Analyst SVP, Sr. Analyst SVP, Sr. Analyst Analyst Mng. Dir. Analyst (207) 699-5800 (212) 763-8239 (207) 699-5800 (800) 203-5332 (877) 457-8625 (615) 760-1474 (877) 492-2663 (615) 269-7323

CONSUMER Apparel Retailing & Toys
Margaret Whitfield Jennifer Milan SVP, Sr. Analyst VP, Analyst (973) 519-1019 (212) 763-8211

Educational Services / Interactive Entertainment
Arvind Bhatia, CFA Luke Shagets Mng. Dir. Analyst (214) 702-4001 (214) 702-4030

Life Insurance
John M. Nadel Jason Weyeneth, CFA Mng. Dir. Analyst (212) 338-4717 (212) 763-8293

Footwear & Apparel
Sam Poser Kenneth M. Stumphauzer SVP, Sr. Analyst Analyst (212) 763-8226 (212) 763-8287

Mortgage Finance & Specialty Finance
Henry J. Coffey, Jr., CFA John Sites, CFA SVP, Sr. Analyst Associate (615) 760-1472 (615) 760-1470

Leisure & Entertainment
David Bain Sherry Yin Mng. Dir. Associate (949) 721-6651 (949) 721-6651

GLOBAL INDUSTRIAL INFRASTRUCTURE (GII) ACME &Latin America
Lawrence T. De Maria, CFA Ben Elias, CFA SVP, Sr. Analyst VP, Sr. Analyst (212) 338-4704 (212) 338-4706

Restaurants
Lynne Collier Philip May Mng. Dir. Analyst (214) 702-4045 (214) 702-4004

Building, Power & Water Infrastructure
Michael J. Coleman, CFA VP, Sr. Analyst (212) 338-4718

ENERGY Oilfield Services & Equipment
David S. Havens Karl Sowislo Mng. Dir. Analyst (212) 763-8238 (212) 338-4732

Engineering and Construction
Chase Jacobson VP, Sr. Analyst (212) 338-4753

Multi-Industry
Nicholas P. Heymann Samuel H. Eisner Jordan Calabrese Mng. Dir. Analyst Associate (212) 338-4703 (212) 338-4705 (212) 338-4729

Exploration & Production
J. David Anderson, PE, CFA Mng. Dir. Adam Aron VP, Analyst (212) 338-4749 (212) 338-4748

TRANSPORTATION, SERVICES & EQUIPMENT
Jeffrey A. Kauffman Sal Vitale Mng. Dir. Analyst (212) 338-4765 (212) 338-4766

FINANCIAL SERVICES Banks & Thrifts
James M. Schutz John Schutz Adam Barkstrom, CFA Blair Brantley, CFA Dir. of Fin. Ser. Associate Mng. Dir. Analyst (864) 241-3384 (502) 420-4015 (800) 906-0577 (800) 621-8635

ADMINISTRATION
Carlo Francisco Marianne Pence Nathan Mitchell Supervisory Analyst Mgr., Res. Admin. Editor (914) 434-3451 (205) 949-3618 (205) 949-3635

Email Address for Sterne Agee Employees: first initial + last name@sterneagee.com (e.g., jsmith@sterneagee.com)

SALES & TRADING
ATLANTA
Adam Aspes Adam Kramer Joe Maloney Jamie Pennington John T. Riley (404) 812-3068 (404) 814-3902 (404) 814-3942 (404) 814-3948 (404) 814-3966

DALLAS
Jennifer Elkins Dan Griffith Candace Martin Bob Nasi Steve Pokorny John Schwalenberg (214) 702-4050 (214) 702-4044 (214) 702-4033 (214) 702-4017 (214) 702-4020 (214) 702-4010

NEW YORK (cont.)
Eric Dusansky Mike Flanagan Rich Gallagher Brian Haise Jeff Hood Alex Jones Carey Kaufman Konrad Krill Robert McGuire Adam Merlo John Molster Jake Morton Matt O’Kelly David O’Shea Jon Palan Bruce Rae Jon Schenk Chuck Schroeder Jason Scott Miko Tam Scott Tashman Ray Wardell (212) 763-8231 (212) 763-8282 (212) 763-8260 (212) 763-8206 (212) 490-1453 (212) 338-4701 (212) 763-8274 (212) 763-8218 (212) 763-8236 (212) 763-8232 (212) 763-8210 (212) 763-8261 (212) 763-8227 (212) 763-8260 (212) 763-8225 (212) 763-8271 (212) 763-8221 (212) 763-8264 (212) 763-8215 (212) 763-8252 (212) 763-8256 (212) 763-8272

BIRMINGHAM
Gary Hagstrom Sam Haskell Scott Hughen Claude Preston Amber Spitzer (205) 380-1782 (205) 380-1781 (205) 380-1764 (205) 380-1762 (205) 380-1761

MINNEAPOLIS
Randy Mason John Regan III (952) 820-4461 (952) 841-6408

NEW ORLEANS
Henry Corder Patrick Donnelly Cheryl Grabert John Regan, Jr. (504) 636-4921 (504) 636-4902 (504) 636-4911 (850) 650-5676

BOSTON
Richard Gill Tom Goode Ted Sheehan Mike Roncone Nicholas White (617) 478-5006 (617) 478-5008 (617) 478-5003 (617) 478-5001 (617) 478-5002

NEW YORK
Jason Barber Matt Boskin JT Cacciabaudo Adam Cavise Mike Cline Tom Criscoula Noel Cueto Enrico DeMatt Geri DeVito (212) 763-8219 (212) 763-8247 (212) 763-8288 (212) 763-8292 (212) 763-8268 (212) 338-4719 (212) 763-8251 (212) 338-4724 (212) 763-8242

CHICAGO
Mark Burrier Jennifer Crall Scott Hallermann Scott Hootman Robert Hurley Vesna Radovic Dan Roesner Curt Thompson (312) 525-8425 (312) 525-8423 (312) 525-8421 (312) 525-8426 (312) 525-8440 (312) 525-8429 (312) 525-8433 (312) 525-8427

SAN FRANCISCO
Justin Brennan Tom Cervantez Chris Larson Naghmeh Rabii (415) 362-6140 (415) 362-7430 (415) 362-6142 (415) 362-6141

INVESTMENT BANKING
Mark Behrman, Mng Dir, Head of Inv Banking (212) 763-8286 Kimberlee Taylor, Admin. Asst. (212) 338-4715

FINANCIAL INSTITUTIONS GROUP
Michael J. O’Boyle, Mng. Dir. Michael Perry, Mng. Dir. Robert P. Hutchinson, Mng. Dir. Jeffrey W. Prochnow, CFA, SVP D. Timothy Speegle, SVP John McCrory, SVP Robert Toma, VP Horacio Barakat, VP Andrew Stager, Associate Nathan Strall, Associate Jung Lee, Associate Michael Stern, Analyst (205) 949-3592 (212) 338-4736 (617) 478-5011 (402) 778-5054 (205) 380-1720 (205) 949-3664 (617) 478-5005 (212) 338-4768 (617) 478-5009 (617) 478-5010 (212) 338-4769 (212) 338-4756

NON-FINANCIALS
John Bolebruch, Mng. Dir. – Industrials Richard Cunniffe, SVP – Industrials Everett Titus III, Mng. Dir – Energy Will Brooke, Analyst - Industrials (212) 338-4716 (212) 338-4713 (908) 730-7882 (212) 763-8278

EQUITY SYNDICATE
Craig B. Jampol, Mng. Dir. (212) 338-4708

Email Address for Sterne Agee Employees: first initial + last name@sterneagee.com (e.g., jsmith@sterneagee.com)

LOCATIONS
Corporate Headquarters 800 Shades Creek Parkway Suite 700 Birmingham, AL 35209 (205) 949-3500 (800) 239-2408 (205) 802-1414 fax 13727 Noel Road th 7 Floor Dallas, TX 75240 (972) 239-4806 (800) 404-2226 (972) 980-7125 fax 620 Newport Center Dr. Suite 1100 Newport Beach, CA 92660 (949) 721-6651 (949) 721-6652 fax

OTHER LOCATIONS
3475 Lenox Road Suite 800 Atlanta, GA 30326 (404) 365-9630 (404) 812-3097 fax

706 E. Washington Street Greenville, SC 29601 (864) 233-6630 (864) 233-6630 fax

2 Union Street Suite 403 Portland, ME 04101 (207) 699-5800 (207) 699-5888 fax

8400 Normandale Lake Boulevard Suite 920 Bloomington, MN 55437 (952) 841-6410 (800) 949-4102

3100 West End Avenue Suite 930 Nashville, TN 37203 (615) 269-7323 (615) 269-9223

5609 Patterson Avenue Suite B Richmond, VA 23226 (804) 521-3224 (804) 521-3199 fax

265 Franklin Street Suite 310 Boston, MA 02110 (617) 478-5000 (800) 836-4616 (617) 443-0310 fax

639 Loyola Ave Suite 200 New Orleans, LA 70113 (504) 299-1021 (888) 978-3763 (504) 299-0956 fax

1001 Craig Road Suite 330 St. Louis, MO 63146 (314) 872-2125 (314) 872-2126 fax

123 N. Wacker Drive Suite 1250 Chicago, IL 60606 (312) 525-8440 (800) 966-0815 (312) 525-8438 fax

2 Grand Central Tower 140 East 45th Street 18th Floor New York, NY 10017 (212) 763-8224 (800) 966-0814 (212) 763-8201 fax

One Maritime Plaza Suite 1940 San Francisco, CA 94111 (415) 362-7430 (415) 362-7436 fax

Email Address for Sterne Agee Employees: first initial + last name@sterneagee.com (e.g., jsmith@sterneagee.com)


				
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