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Societe Generale: Caterpillar's Low Expectations May Be Blessing In Disguise

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Societe Generale: Caterpillar's Low Expectations May Be Blessing In Disguise
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  • Caterpillar Inc. (NYSE: CAT) shares are down 24 percent year-to-date, and are trading close to the lower end of their 52-week range of $70.23 - $107.12.
  • Societe Gererale’s Henry Kim maintained a Buy rating for the company, while reducing the price target from $110 to $104.
  • Although Caterpillar's sales have continued to decline, Kim believes there is upside in the company’s shares, given the low expectations.

Caterpillar announced rolling 3-month retail sales, reflecting an 11 percent y/y decline in global machine sales in the three months ended August. The decline in Energy & Transportation accelerated to 21 percent, from 14 percent in July.

Analyst Henry Kim reported, “While it would take a few quarters for any recovery to show in CAT’s retail sales statistics and we expect continued headwinds in Oil & Gas (12% of sales) and Mining (12% of sales), we still believe any leading signs of end-market recovery as we exit the year could serve as a catalyst for shares.”

Caterpillar’s machine sales have declined every month since December 2012. Expectations are now low. Kim pointed out, “We note signs of end-market recovery in a similar low expectation environment led to a material outperformance for CAT shares in H2 09.”

“CAT’s share performance so far today (CAT up 0.1% more than S&P 500) indicates investors were braced for challenging retail sales,” the analyst added. The price target has been reduced to reflect a lower 2015 S&P 500 multiple, following the recent downturn.

Latest Ratings for CAT

DateFirmActionFromTo
May 2018Bank of AmericaDowngradesBuyNeutral
Apr 2018Daiwa CapitalDowngradesOutperformNeutral
Apr 2018BairdMaintainsNeutralNeutral

View More Analyst Ratings for CAT
View the Latest Analyst Ratings

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