Both Opportunity And Uncertainty Surround Caterpillar

Ivan Feinseth of Tigress Financial upgraded Caterpillar Inc. CAT to Neutral from Underperform, saying both opportunities and uncertainties surround the company.

“CAT is best positioned to gain from the Trump Administration’s focus on infrastructure improvements. However, global economic headwinds and negative trend of commodity and oil prices continue to pressure Business Performance,” Feinseth wrote in a note.

Infrastructure Boost, China Spending

The analyst believes Caterpillar will play a key role in Trump’s $1 trillion U.S. infrastructure spending as it's the leading makers of heavy construction equipment.

Caterpillar should also benefit from higher residential and infrastructure spending in China, while ongoing cost cutting efforts should start to pay off. Caterpillar is targeting $750 million cost reductions in 2017.

In January, the company said it's planning to close Aurora, Illinois facility as part of its efforts to reduce costs and streamline operations. If the company moves production outside the U.S. for products used in the U.S., it would earn the wrath of Trump administration, which strongly opposes exporting U.S. jobs.

Federal Probe

In addition, shares could be pressured by negative developments from Federal probe regarding its export filings related to its Swiss unit. But, Feinseth believes the Trump administration may be open to negotiating a settlement.

Feinseth would become more constructive on Caterpillar shares when business trends become clearer and cost cutting yield positive results.

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