Shares of Caterpillar (CAT) are rising after a Baird analyst upgraded the stock to Outperform saying he sees continued demand growth.
UPGRADE TO OUTPERFORM: On Thursday, Baird analyst Mig Dobre upgraded Caterpillar to Outperform from Neutral saying he believes demand growth should continue into 2019. The analyst said he views setup into year-end for the machinery segment as more favorable as good fundamentals and more inexpensive valuation combine with several potential catalysts. While some markets like China and U.S. light construction equipment are close to peak, most of the Caterpillar’s demand is still at or below mid-cycle levels, said Dobre. In addition, capital deployment remains a catalyst, the analyst said. Dobre raised his price target for Caterpillar shares to $191 from $155.
“CAT-AGORICALLY BULLISH”: On Wednesday, BMO Capital analyst Joel Tiss kept his Outperform rating and $185 price target on Caterpillar after meeting with its head of Resource Industries and representatives from Investor Relations this week, saying the discussions affirmed his view that the company’s “cyclical peak concerns are overblown”. Tiss said that certain markets may be reaching a “plateau,” however “the depth of the trough” in other markets is likely underappreciated. The analyst notes that Caterpillar’s end markets are not expected to top out for “several years,” with mining and energy starting to show some traction from the bottom and power generation also showing signs of recovery. The analyst added that the management looks ahead to a “significant opportunity in driving growth in its existing business” as it transitions from cost reductions to improved profitability.
WHAT’S NOTABLE: On September 4, the company reported that its total retail machines sales were up 23% on a three-month rolling basis in August. For reference, retail sales of machines were up 24% in the period ending in July and up 25% in the period ending in June. The company reported world Resources Industries sales up 35% in the August-end period, compared to a July period increase of 34%. Construction Industries world sales were up 21% in the August-end period, versus the 22% increase in the prior three-month period ending in July. Total Energy & Transportation Retail Sales were up 16% in the August-end period, up from an 11% increase in the July-end period.
