Analysts Say The Market Is Getting Caterpillar Earnings Wrong

Caterpillar Inc. CAT dropped another 3 percent Wednesday after the company released its Q3 earnings report Tuesday morning.

Wall Street analysts, however, remain bullish on Caterpillar in the near term and see the sell-off as a buying opportunity for investors. Here’s a sampling of what some analysts had to say about Caterpillar.

Voices From The Street

Wells Fargo analyst Andrew Casey said the market seems to think Caterpillar earnings have peaked, but he projects earnings will continue to grow for the next two years.

“Against currently compressed valuation multiples, we believe the stock could have upside if certain macroeconomic events occur that partially, or fully, reverse current market sentiment (i.e., increased China stimulus, partial or full roll back of tariffs, passage of infrastructure bill),” Casey wrote.

Citigroup analyst Timothy Thein said the market is not fully appreciating Caterpillar’s pricing upside.

“We assume CAT realizes ~2pts of pricing in 2019, contributing ~$1BB of earnings tailwind,” Thein wrote.

Morgan Stanley analyst Courtney Yakavonis said investors are jumping the gun by assuming an EPS decline within the next six months.

“We think it is unlikely that CAT's NTM EPS turn negative by 2Q19,and therefore think a re-rating towards a 11-13x range is reasonable in the near-to-medium term,” Yakavonis wrote.

Baird analyst Mircea Dobre said uncertainty surrounding demand sustainability particularly in China, trumped Caterpillars strong fundamental numbers.

“Management's end-market commentary remained more positive than valuation multiple implies, yet lack of a firm commitment to increase buybacks weighed on the stock we believe,” Dobre wrote.

Ratings And Price Targets

• Wells Fargo has a Buy rating and $145 target.
• Citigroup has a Buy rating.
• Morgan Stanley has an Overweight rating and $169 target.
• Baird has an Outperform rating and $171 target.

The stock traded around $115.14 at time of publication, down about $15 per share this week.

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