UPDATE: Raymond James Upgrades Caterpillar to Outperform on Valuation

In a report published Friday, Raymond James upgraded its rating on Caterpillar CAT from Market Perform to Outperform and reiterated its $105.00 price target. Raymond James noted, “We turned neutral on CAT's stock last June due to several reasons including (i) excess production capacity (ii) elevated OEM and dealer inventory levels; (iii) the replacement cycle running its course; (iv) reduced mining capex and related backlog decline; and (v) inflated consensus expectations. Since then, we have seen many of these issues transpire, and CAT take action accordingly. More specifically, the OEM has cut back production (and curbed capacity expansion plans), reduced inventories, and moderated the Street's expectations. We acknowledge that some of the aforementioned headwinds remain on the horizon. Mining budgets continue to be tight, and both CAT and its dealers require some further inventory reductions. Nonetheless, several signs are pointing to improving conditions, particularly in the US construction markets. Examples include: (i) January's ABI score of 54.2, which is the highest growth since November 2007 and up sharply from 51.2 last month; (ii) January's US single-family units hitting their highest level since July 2008 and permits for future home construction reaching a 4½ year high; and (iii) the passing of a highway bill for FY13/14.” Caterpillar closed on Thursday at $91.53.