Market Overview

Analyst Says It's 'Becoming Increasingly Clear' Caterpillar Is Approaching A Negative Earnings Cycle

Analyst Says It's 'Becoming Increasingly Clear' Caterpillar Is Approaching A Negative Earnings Cycle

Deutsche Bank's Chad Dillard downgraded Caterpillar Inc. (NYSE: CAT) from Buy to Hold and explained on CNBC Wednesday morning the reasons behind his call.

What Happened

A bullish stance on Caterpillar's stock can no longer be justified for a few reasons, Dillard said on CNBC's "Squawk Box":

  1. Global growth has "collapsed" and around 55 percent of sales come from international markets;
  2. Concerns in China, which account for around 45 percent of sales;
  3. A slowdown in Europe is happening faster than expected; and
  4. The U.S. market is over-saturated with construction equipment.

Due to these concerns, Dillard says the risk-reward profile on the stock is now balanced and a move to side-lines is warranted.

Why It's Important

It's "becoming increasingly clear" Caterpillar is on the verge of a negative earnings revision cycle, according to Dillard. Typically when this happens to Caterpillar, earnings get cut by 45 percent and the stock reacts with a big move to the downside.

It's important to monitor how synchronized the world is in terms of growth, Dillard told CNBC. Over the past year, it has gone down from around 80 percent to 15 percent and if it becomes flat, it could be a "positive sign" for Caterpillar. It takes a few months for any improvements in global growth to be seen in the company's bottom-line growth.

Caterpillar's stock traded around $139.12 per share Wednesday afternoon.

Related Links:

The Street Reacts To Caterpillar's First Notable Miss In Years

The Double Downgrade Hurting Caterpillar's Stock

Latest Ratings for CAT

Oct 2020StifelMaintainsBuy
Oct 2020Morgan StanleyMaintainsUnderweight
Oct 2020Wells FargoUpgradesEqual-WeightOverweight

View More Analyst Ratings for CAT
View the Latest Analyst Ratings


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