BofA Cuts Caterpillar Target, Earnings Estimates

Caterpillar Inc. CAT reported mixed results for the third quarter and faced some impediments that could limit its leverage when the economy improves, according to BofA Securities.

The Caterpillar Analyst: Ross Gilardi maintained a Neutral rating for Caterpillar while reducing its price target from $171 to $168.

The Caterpillar Thesis: Although the company reported operating results higher than the consensus estimate, the consensus figure was conservative, and it was evident that the market expected more, Gilardi said.

He added that the stock tumbled 3% after Caterpillar released its third-quarter results.

While Caterpillar’s earnings could recover with the global economy and it is witnessing “pockets of improvement,” its end market exposure, elevated internal inventories, and the downturn in R&D could prove to be obstacles “that can limit CAT’s leverage to the upcycle,” the analyst wrote in a note.

“High margin business lines (turbines, NA non-res, oil & gas) could remain soft,” he added.

Gilardi reduced the earnings estimates for 2020, 2021 and 2022 from $5.50 per share to $5.35 per share, from $7.00 per share to $6.85 per share and from $9.00 per share to $8.85 per share, respectively.

CAT Price Action: Shares of Caterpillar slipped 4.2% to $151.16 on Wednesday.