Speedy Hire Caterpillar's yearly earnings to outperform Wall Street predictions: Goldman Sachs
The yearly earnings of construction and mining equipment manufacturer Caterpillar are expected to significantly outperform Wall Street predictions, according to Goldman Sachs. The investment bank has therefore reiterated its buy rating on Caterpillar shares and added the company to its Americas conviction buy list. The construction machinery market is in the early stages of recovery and offers increased scope for inventory restock as the industry's capital expenditure on machinery returns to normal, according to Goldman Sachs analyst Jerry Revich.

Investors should buy Caterpillar because the company will report earnings this year significantly above Wall Street expectations, according to Goldman Sachs, which reiterated its buy rating on the equipment manufacturer and added the company to its Americas conviction buy list. "Construction machinery demand is in the early stages of recovery, with significant scope for inventory restock," analyst Jerry Revich wrote in a note to clients Tuesday. "A modest construction recovery in key regions, compounded by normalization in machinery share of capex should drive strong demand growth off of historically low levels." Revich maintained his Caterpillar price target of $120, representing 30 percent upside from Monday's close. The analyst cited how mining equipment as a percent of resource firms' capital expenditure budgets are 90 percent below the 2012 peak. He said construction equipment utilization rates are getting better around the world and "dealer inventories are at their lowest levels in more than a decade," according to Goldman's research. As a result, Revich forecasts Caterpillar will report earnings per share of $3.96 this year versus the Wall Street consensus of $3.13. He predicts the company will be able to generate $8.00 of earnings per share in the middle of the current cycle due to its cost-cutting and lower shares outstanding. The company is being investigated by the IRS over its offshore tax practices from 2007 to 2012, which has weighed on the shares this year. "IRS litigation is a risk, but the market cap is down $4 bn since 3/1 vs. $2 bn disclosed dispute," the report said. — CNBC's Michael Bloom contributed to this story.

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