Market Overview

Barclays Steps To The Sidelines On Caterpillar

Barclays Steps To The Sidelines On Caterpillar
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Caterpillar Inc. (NYSE: CAT) reported record second-quarter results, but this prompted Barclays to downgrade the stock.

The Analyst

Barclays' Adam Seiden downgraded Caterpillar from Overweight to Equal-Weight with a price target lowered from $170 to $155.

The Thesis

The bullish case for Caterpillar was justified based on a meaningful growth profile over the years, Seiden said in a note. But the growth is now "appreciated" by the Street and there are a few reasons to drop the bullish rating exiting the second-quarter report.

  • Caterpillar's biggest end-markets are no longer in a trough with some being in the mid cycle of growth and others are "above that."
  • Management is looking to increase prices to offset any impact from tariffs, but this will limit the potential for margin expansion in the back half of 2018.
  • Shares of Caterpillar are trading at 11 times earnings, which isn't "particularly expensive." Some of its peers like Deere & Company (NYSE: DE) and CNH Industrial NV (NYSE: CNHI) are trading at similar valuations, however, and are earlier in their respective market cycles.
  • If trade and tariff rhetoric eases ahead of the midterm elections, crane companies and agriculture OEM's are better positioned than Caterpillar to benefit the most in machinery.
  • Management's $10 billion share repurchase authorization timeline is unknown, which may be a positive but it also creates less risk for short sellers to target the stock.

Price Action

Caterpillar shares were trading higher by 2 percent Tuesday morning at $142.66.

Related Links:

Analysts: Caterpillar's Stock Could Be Front And Center In A Trade War

Bank Of America Lowers Industrial Machinery Price Targets Across The Board

Latest Ratings for CAT

Dec 2018Bank of AmericaUpgradesNeutralBuy
Oct 2018DZ BankUpgradesSellHold
Oct 2018Credit SuisseMaintainsOutperformOutperform

View More Analyst Ratings for CAT
View the Latest Analyst Ratings

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