This Cat's Got Claws; Caterpillar Upgraded To Buy

Caterpillar Inc. CAT, which invented the iconic rolling tracks on steam tractors in the 1890s, is coming out of its cocoon and ready to deliver big wins for investors, UBS analyst Steven Fisher says.

Fisher upgraded Caterpillar from Neutral to Buy and raised the price target from $116 to $140 “to reflect our new evidence that a continuation of the earnings upcycle is ahead and that CAT's growing cash position will drive upside to earnings and returns as it gets deployed.”

CAT’s Cash Flow Key

Caterpillar, which got his name when founder Benjamin Holt was told his new-fangled tractor treads looked like the larvae, was trading at $123.20 in the pre-market, up 1.51 percent.

“We think the cash story is particularly underappreciated, and will become more of a visible part of the investor dialogue going forward,” Fisher wrote in an analyst note. “Between 2018 and 2020, we expect CAT to generate nearly $10 billion of cash flow after capex and dividends that can be strategically redeployed or returned to shareholders.”

Other positives are August retail sales projections and 2018 revenue guidance by UBS of $46 billion.

He wrote that UBS’s survey of 50 mining companies shows that 60 percent expect a hike in new equipment budgets next year over the current levels, and that 50 percent expect to rebuild fleets within the next 12 months.

Related Link: Caterpillar Is A ‘Whole Different Animal,’ Upgraded To Outperform