Deutsche Bank: Caterpillar's Consensus Has Undergone Metamorphosis

The upside for Caterpillar Inc. CAT shares is baked into the consensus, according to Deutsche Bank.

The firm downgraded the equipment manufacturer from Buy to Hold and lowered its price target from $121 to $106 Thursday.

When Caterpillar reports second-quarter earnings July 25, it will likely deliver an EPS beat — but that upside might not last, research analyst Saree Boroditsky said in a note.

“[W]e believe 2Q will represent the last significant ‘beat and raise’ quarter for CAT this year, and think [second half] consensus forecasts could remain stagnant.”

Benzinga reported in March that the Peoria, Illinois-based company was raided by agents from the Internal Revenue Service, Federal Deposit Insurance Corporation and U.S. Department of Commerce.

Deutsche Bank’s Thesis No Longer An Outlier

Deutsche initiated coverage of Caterpillar with a Buy in September 2016.

“At the time of our launch, this view was quite contentious, but the company has since reported results that corroborated this thesis, and as a result, these upside drivers have now been largely embedded into consensus forecasts,” Boroditsky said.

A recovery is unlikely with two other drivers of positive earnings revisions — oil and gas and construction equipment — the analyst said.

Deutsche’s upside on Caterpillar has been based on upward earnings revisions, a natural resources recovery and a cross cycle lift in incremental margins, Boroditsky said.

“We continue to believe that the company will enjoy robust EPS growth for the next several years driven by these factors, but the stock is likely pricing much of this growth in already.”

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