Market Overview

Seeing A Recovery Already Priced In, Citi Remains Neutral On Caterpillar Stock

Share:
Seeing A Recovery Already Priced In, Citi Remains Neutral On Caterpillar Stock

Citi’s Timothy Thein believes the proposed merger of Komatsu Ltd (ADR) (OTC: KMTUY) and Joy Global Inc. (NYSE: JOY) would create a strong competitor for Caterpillar Inc. (NYSE: CAT), although greater long-term risk are likely to be associated with OEMs with narrower product lines.

Thein maintains a Neutral rating on Caterpillar, with a price target of $82.

Improvement Underway

The analyst said, “CAT will have time to shore-up its dealer base in regions where we think some ground was lost post-BUCY.”

In addition, the increasing commodity prices have been helping to improve earnings and free cash flow prospects for the company’s mining customers, and the analyst expects a capex trough in 2017.

“CAT's direct hard rock leverage is low, but we note that gold has historically led base metals prices,” Thein stated.

Related Link: Are Caterpillar Shares Digging Their Way Up From A Bottom?

On the other hand, the analyst believes the high stock levels of used equipment, combined with ongoing efforts by miners to increase productivity of their existing assets, would dampen the OE recovery.

RI Recovery

Caterpillar expects RI to move toward breakeven levels in 4Q16, a trend that Thein expects to be carried into FY17, with RI “in the black.”

Thein also noted, “Ongoing restructuring benefits, more normal R&D spend and above-avg incremental volume leverage should more than offset stiffer price/cost headwinds.”

The analyst believes that the current stock valuation already prices in an RI recovery scenario.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Latest Ratings for CAT

DateFirmActionFromTo
Feb 2021JP MorganMaintainsOverweight
Feb 2021BMO CapitalMaintainsMarket Perform
Feb 2021Credit SuisseMaintainsOutperform

View More Analyst Ratings for CAT
View the Latest Analyst Ratings

 

Related Articles (CAT + JOY)

View Comments and Join the Discussion!

Posted-In: Citi Timothy TheinAnalyst Color Reiteration Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
GNKJefferiesMaintains13.0
TDOCDA DavidsonMaintains275.0
ITRIOppenheimerMaintains127.0
CLHOppenheimerMaintains95.0
TDOCOppenheimerMaintains270.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
SPAC
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com