Caterpillar, Inc. (NYSE:CAT) is a CATastrophe waiting to happen (or so we think) for the following reasons:
1. Questionable revenue recognition practices between CAT & its foreign subsidiaries
2. 54% of CAT’s assets belong to Caterpillar Finance, yet management rarely mentions its existence. Shareholders don’t seem aware of the Finance arm’s existence.
3. CAT’s customers are slashing spending & are in cash conservation mode. Some are at risk of filing chapter 11. Take FCX for example which just announced it is reducing, deferring capital expenditures, and seeks asset sales.
4. 70% of sales originate from outside the United States, therefore economic strength in the US plays second fiddle to the China/commodities bust.
5. CAT does not generate enough free cash flow to cover its dividend.
6. CAT completed $9 billion in failed (including one fraudulent), value-destroying acquisitions since 2010.
7. Channel checks from 4 sources show backlog worse than the lower end of expectations.