Uncertainties Over Trump/Clinton Presidencies Could Delay CFO Spending

Tuesday, October 18th, 2016

Concerns and questions surrounding both candidates and their policies has led to an increased number of CFOs stating they will delay capital spending.

In a recent survey from Duke University's School of Business, of 1,200 senior finance executives, 33% of CFOs have said they will hold back on investment after the election.

This is a concern for the strength of the economy, as capital spending helps bolster and grow it.

The delay in spending is a result of uncertainty in the candidate's platforms and the regulations that will be enforced. Looking at the candidates individually, 40% of CFOs state they will hold off on investment if Clinton is elected, versus 33% of CFOs holding off if Trump is elected.

The policies of the candidates are not the only concern, as interest rate rises could also be impactful.

The surprise here is that many CFOs state that an increase of less than 1% in interest rates would not change their spending plans.

Many CFOs believe it is time to get back to normal rates and off the current historic lows.

Today's company of the day is Caterpillar Inc. (CAT). The current price is $88.19 and the 52-week range is $56.36-$89.87.

The company pays a strong dividend of 3.5%, but that is concerning as it uses 163.0% of earnings to pay that dividend out.

If the company cannot grow earnings at a strong rate to reduce the payout ratio, there could be cause for concern over the stability of that dividend.

Sales have fallen 20.9% over the last 12 months and EPS has fallen 69.9% over the same time frame. So again it would be important for the company to reverse the declines and see positive growth in sales and EPS.

One factor Caterpillar would benefit from would be an increase in capital spending by other companies.

Looking at the balance sheet, a current ratio of 1.24 looks okay, but debt/equity of 251.6% looks concerning.

An interesting fact about Caterpillar is that it has a financial services portion of the company. This has a negative impact on the total debt/equity.

Looking at the machinery and equipment portion of the company, debt/equity of 62.0% looks much stronger.

Before considering an investment in this company, it would be extremely important to understand the company's complex balance sheet.

Looking forward to December 2017, estimated EPS of $3.31 gives us a target sell price of $54.62. This is well below the current price.

There is a lot of uncertainty surrounding the industrial sector, and being patient until the outlook is clearer could be very beneficial.

Do you have a question or a company you'd like me to take a look at? Email us at Brent@WilseyAssetManagement.com or Chase@WilseyAssetManagement.com!


Brent Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. 

Chase is a financial analyst for Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760 as the co-host for the Smart Investing show with his father Brent Wilsey. Information is provided by Reuters.

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