Caterpillar (CAT  ) is the largest construction equipment company in the world, so its earnings reports are highly anticipated as a leading indicator of the global economy. Its shares were quite strong from the bottom in March 2020 to its peak in July of this year as optimism increased about the economic recovery.

Since then, Caterpillar shares are down by about 20% as markets are increasingly becoming pessimistic about the growth outlook, no doubt in part due to continued outbreaks with the Delta variant.

Inside the Numbers

Caterpillar's Q2 results were strong but the stock's weak reaction to these numbers indicates that the market is more focused on the macro picture. In Q2, the company topped earnings estimates with $2.60 in earnings per share beating expectations of $2.41 per share. Revenue also topped expectations at $12.9 billion vs $12.5 billion. Overall, earnings more than doubled compared to last year's Q2, while revenue increased by 29%.

The company attributed to strength in the US housing market and increased Capex by commodity companies as the primary drivers of its strong report. The company expects revenue to trend higher the rest of the year but did warn that disruptions in the global supply chain, including the chip shortage, could hinder its ability to fully meet demand.

Given these uncertainties, Caterpillar didn't issue guidance for the full year or Q3. However, analysts project 2021 earnings to come in at $9.99 with revenue of $48.7 billion. For Q3, the consensus expectation is for $2.23 in earnings per share and $11.9 billion in revenue.

Stock Price Outlook

Caterpillar shares remain a buy on weakness. Clearly, shares ran up too much over the past year, and now the stock is undergoing a healthy consolidation. The primary driver for Caterpillar over the next couple of years is the coming CAPEX boom as spending on new projects for energy and commodity companies has been quite low.

Even with the recent increase in prices, spending has only marginally increased. As the largest construction equipment company in the world, Caterpillar will be a major beneficiary. Further, more housing will have to be built in the U.S. which is another tailwind in addition to the possibility of a $1 trillion infrastructure bill being passed whose odds marginally improved following last week's breakthrough in the Senate.