Bernstein Upgrades Caterpillar, PACCAR To Outperform; Downgrades AGCO

Bernstein updated ratings for three Machinery stocks, believing that the concerns about the end of the machinery cycle in 2022 are "overdone" and sees an uneven sector setup into 2022.
Bernstein analyst Chad Dillard upgraded Caterpillar Inc. CAT to Outperform from Market Perform with a $240 price target, implying an upside of 19%.
He thinks Caterpillar should be the biggest beneficiary of the looser monetary policy in China, with the Street also not baking in steel tailwind, which could be $0.85 EPS accretive in 2022.
The analyst believes expectations for Caterpillar are "low" and that it is an earlier cycle stock in a mid-cycle sector.
The analyst downgraded AGCO Corp AGCO to Market Perform from Outperform and lowered the price to $127 (an upside of 13%), from $177.
The analyst argued that 90% of AGCO's end markets are at their peak, with North America small and large ag and Europe exiting 2022 above historical peaks. Also, farm economics are weakening, and restocking will only be a modest tailwind for AGCO.
Dillard thinks EPS beats will not get rewarded since AGCO is over-earning and believes incremental margin recovery may be more subdued than peers.
Additionally, the analyst upgraded PACCAR Inc PCAR to Outperform from Market Perform with a $98 price target.
Price Action: CAT shares are trading higher by 1.57% at $201.43, PCAR higher by 0.88% at $84.11, and AGCO lower by 1.62% at $112.29 on the last check Wednesday.

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