The Contrarian Case For Caterpillar: Don't Freak Out, Investors

• In a recent report, Deutsche Bank analysts Vishal Shah and Chad Dillard try to answer the question: are Caterpillar Inc. CAT shares oversold at current levels?
• The experts assure that, after the marked decline the stock price experienced since the company trimmed its guidance for 2015 and announced its 2016 outlook, the shares look quite attractive.
• Shares of Caterpillar are down roughly 3 percent on Monday trading.

Since Caterpillar trimmed its 2015 guidance and announced its 2016 guidance, shares are down almost 10 percent. At current levels, shares look attractive, Deutsche Bank analysts assure.

Two major concerns weigh on the stock at the time, the report continues. One is the possibility of further downside risk to 2016 EPS, the other one, the preoccupation that “next year will not mark an EPS trough.” Consequently, the firm takes a “conservative” approach to 2016 and 2017, setting an EPS estimate of ~$3.75 for 2016 and an increase to ~$4.10 for 2017. This implies earnings growth of 10 percent.

Applying a 21x trough P/E multiple, the experts arrive to an $80.00 price target (down from $85.00) and reiterate a Buy rating.

The research note highlights a few other key issues for investors. Namely:

1)   The initial 5 percent reduction to the 2016 revenue guidance seems conservative enough to the analysts.

2)   E&T could stabilize in 2017 on a rebound of oil and gas, among other factors.

3)   The company could see 10 percent earnings growth in 2017.

4)   “A 4.7% Dividend Yield Offers Significant Downside Protection”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.