Blair Downgrades Caterpillar, Notes 'Too Many Headwinds To Ignore'

Shares of Caterpillar fell to new 52-week lows of $64.65 on Thursday after the company revised its full year fiscal 2015 sales outlook lower from approximately $49 billion to $48 billion. The company also said it sees fiscal 2016 sales lower by around five percent and plans to reduce its workforce by four to five thousand employees. In a report published Friday, William Blair analyst Lawrence De Maria downgraded Caterpillar to Market Perform from Outperform with a price target slashed to $60 from a previous $90 as there are "too many headwinds to ignore." De Maria continued that the "numerous" headwinds, including North America locomotives, oil and gas and other commodity investments, and emerging market weakness (such as Brazil and China) will likely "spill over" into "at least" next year. The analyst added that even in the U.S., a market that has typically been a "source of strength," weakness in the ABI is "troubling" with no recovery in oil and gas in sight. De Maria stated that for Caterpillar's stock to "work," there needs to be a "positive inflection in global off-highway sales," which at this point appears to be "unlikely." In addition, there are no clear major catalysts that could provide any sort of positive momentum for the company other than an acceleration in the global economy – of which there is currently "no visibility." De Maria further argued argued that Caterpillar's main focus will now consist of "managing the downturn," while also focusing on growing its market share and execution. As such, it will be "challenging" for the cyclical industrial group to outperform. Bottom line, there is "limited visibility" on a recovery from current levels and even if the company's earnings were to recover, the analyst doesn't see a "major trajectory upward."