Market Overview

BofA Downgrades Caterpillar, Strengths Not Enough To Offset Energy Exposure

BofA Downgrades Caterpillar, Strengths Not Enough To Offset Energy Exposure

While Caterpillar Inc. (NYSE: CAT) has a strong balance sheet and a dividend yield of nearly 4%, these are not enough in the current scenario, according to BofA Securities.

The Caterpillar Analyst

Ross Gilardi downgraded Caterpillar from Buy to Neutral, while reducing the price target from $123 to $115.

The Caterpillar Thesis

Caterpillar has suspended its 2020 outlook, as have its peers, which highlights the degree of demand and supply side uncertainty due to the COVID-19 outbreak, Gilardi said in the note.

The company generates around 10% of sales directly from oil and gas, while also supplying pipe-laying equipment for construction, power generation, and diesel freight locomotives, all of which are indirectly related to energy. The analyst said Caterpillar also serves several big energy and natural resource driven economies like the Canadian oil sands.

“Our energy team is calling for a halving in the US onshore right count in 2020 and another 35% reduction in 2021. We are also seeing one major capital spending cut after another from the large E&Ps, as well as pipeline project deferrals in the midstream space,” Gilardi wrote.

Caterpillar has a strong balance sheet and healthy cash flows. He added, however, that the company’s stock has bounced back around 20% from recent lows, leaving little upside.

CAT Price Action

Shares of Caterpillar had declined almost 5% to $105.14 at time of publication Friday.

Related Links:

Despite 'Once In A Lifetime Opportunity,' Investors Still Need To Do Their Homework

Pandemic Leads Caterpillar To Withdraw 2020 Guidance

Latest Ratings for CAT

Apr 2020B of A SecuritiesMaintainsUnderperform
Apr 2020UBSMaintainsNeutral
Apr 2020Morgan StanleyMaintainsUnderweight

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Posted-In: BofA Securities Ross GilardiAnalyst Color Downgrades Price Target Analyst Ratings

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MGNXSVB LeerinkMaintains27.0
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