Caterpillar Inc. (CAT) reported second quarter EPS of $1.74, above our expectations of $1.52, due to a lower share count, increased price realization and higher international sales volume. The company remains committed to capacity expansion in growth markets outside the U.S., which positions CAT to increase share in mining and energy-related equipment.

Our FY08 EPS estimate of $6.41 -- which is above the management guidance -- assumes 30% revenue growth in the Middle East, Asia Pacific and Latin America, no growth in North America, and a share count of 608 million. Our target price is $75.50.

A recovery is expected in FY08 in U.S. coal market due to the recent rebound in coal prices and increasing coal exports. Outside North America, metal mine production increased in most regions led by higher prices. Thus, with prices of most commodities higher globally, demand for CAT equipment remains extremely strong.

In June, CAT announced