How To Trade CAT Stock Ahead of Its Earnings?

Forbes

28-04-2025

CHONGQING, CHINA - APRIL 26: In this photo illustration, the logo of Caterpillar Inc. is displayed ... More on a smartphone screen, with the company's distinctive yellow and black branding visible in the background, on April 26, 2025, in Chongqing, China. (Photo illustration by)
Caterpillar (NYSE:CAT) is set to announce its earnings on Wednesday, April 30, 2025. Historical records indicate a tendency for the stock to react unfavorably to its earnings announcements. Over the last five years, CAT stock has recorded a negative one-day return after its earnings release in 74% of the cases. The median negative return during these times was -3.0%, with the largest single-day decline being -7.0%.
The current consensus estimates predict earnings per share (EPS) of $4.35 on revenues of $14.58 billion for the upcoming quarter. This is lower than last year's earnings of $5.60 per share on sales of $15.8 billion reported in the same quarter. Caterpillar's sales are expected to be affected by reduced dealer inventory levels as overall demand continues to be subdued. This is likely due to high interest rates and a challenging inflationary environment.
For traders focused on events, assessing these historical trends could yield a trading advantage. There are two primary strategies: first, grasping the historical probabilities of various stock reactions after earnings to potentially position themselves before the earnings announcement. Second, analyzing the relationship between the immediate stock movement after earnings and its medium-term performance to guide trading actions following the release.
From a fundamental viewpoint, Caterpillar currently has a market capitalization of $147 billion. In the past twelve months, the company generated $65 billion in revenue, achieving $13 billion in operating profits and a net income of $11 billion. Ultimately, the actual market reaction to CAT's forthcoming earnings will depend greatly on how the reported results measure up against these consensus expectations and overall market sentiment.
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View earnings reaction history of all stocks
Some insights on one-day (1D) post-earnings returns:
Additional data for observed 5-Day (5D), and 21-Day (21D) returns post-earnings are consolidated along with the statistics in the table below.
CAT 1D, 5D & 21D Post Earnings Return
A relatively less risky approach (though not applicable if the correlation is low) is to comprehend the correlation between short-term and medium-term returns following earnings, identify a pair that exhibits the highest correlation, and execute the relevant trade. For instance, if 1D and 5D display the greatest correlation, a trader can position themselves 'long' for the next 5 days if the 1D post-earnings return is positive. Here is some correlation data based on a 5-year and 3-year (more recent) history. Note that the correlation 1D_5D refers to the relationship between 1D post-earnings returns and subsequent 5D returns.
CAT Correlation Between 1D, 5D, and 21D Historical Returns
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