Bernstein Upgrades Caterpillar, PACCAR To Outperform; Downgrades AGCO

  • Bernstein updated ratings for three Machinery stocks, believing that the concerns about the end of the machinery cycle in 2022 are "overdone" and sees an uneven sector setup into 2022.
  • Bernstein analyst Chad Dillard upgraded Caterpillar Inc. CAT to Outperform from Market Perform with a $240 price target, implying an upside of 19%. 
  • He thinks Caterpillar should be the biggest beneficiary of the looser monetary policy in China, with the Street also not baking in steel tailwind, which could be $0.85 EPS accretive in 2022.
  • The analyst believes expectations for Caterpillar are "low" and that it is an earlier cycle stock in a mid-cycle sector.
  • The analyst downgraded AGCO Corp AGCO to Market Perform from Outperform and lowered the price to $127 (an upside of 13%), from $177. 
  • The analyst argued that 90% of AGCO's end markets are at their peak, with North America small and large ag and Europe exiting 2022 above historical peaks. Also, farm economics are weakening, and restocking will only be a modest tailwind for AGCO. 
  • Dillard thinks EPS beats will not get rewarded since AGCO is over-earning and believes incremental margin recovery may be more subdued than peers.
  • Additionally, the analyst upgraded PACCAR Inc PCAR to Outperform from Market Perform with a $98 price target.
  •  Price Action: CAT shares are trading higher by 1.57% at $201.43, PCAR higher by 0.88% at $84.11, and AGCO lower by 1.62% at $112.29 on the last check Wednesday.
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