Why This Caterpillar Analyst Wants More Clarity On Hydrogen, Rail Strategies

Caterpillar Inc. CAT shares were trading lower Thursday after one analyst said the company’s rail and hydrogen initiatives leave much to be desired.

The Caterpillar Analyst: Bank of America analyst Ross Gilardi reiterated a Neutral rating on Caterpillar with a $250 price target.

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The Caterpillar Takeaways: In a new note, Gilardi focused on Caterpillar’s hydrogen and rail initiatives. Caterpillar has reported two Department of Energy awards related to hydrogen fuel cells in data centers. In addition, the company has mentioned that hydrogen could be a potential fuel source for large mining trucks.

While hydrogen is an exciting potential growth opportunity, Gilardi said Thursday that Caterpillar needs to provide more clarity on its goals and progress so investors can get some sense of the size of the opportunity and where Caterpillar stands relative to its competition.

This week, General Motors Company GM and Wabtec announced a new partnership to develop electric locomotives. GM is reportedly supplying its Ultium battery and hydrogen fuel cell systems to power Wabtec locomotives.

Caterpillar previously announced it developed the first all-electric switch locomotive as part of a partnership with Vale. However, Gilardi said Caterpillar barely mentions its rail business anymore, and the new GM-Wabtec deal puts pressure on Caterpillar to find a potential partner in the rail industry.

The analyst speculated that Cummins Inc. CMI could potentially make a great rail partner for Caterpillar. Cummins is investing heavily in hydrogen fuel cells, and supplies Komatsu, which is developing a hydrogen fuel cell mining truck.

“We’re not sure if this opens the door for CMI and CAT to work together, but CAT seems like it needs an external partner, CMI has know-how and wants to grow in Off-Highway,” Gilardi said.

CAT Price Action: Caterpillar shares were down 3.76% at $208.97 at last check Thursday.

Benzinga’s Take: The stock market typically doesn’t like uncertainty, so any time a company like Caterpillar can provide investors with clarity, targets and updates on a particular initiative, it’s typically considered a good thing.

When a company like Caterpillar is quiet on its hydrogen and rail businesses, investors are left to assume there’s simply no good news to report.