Caterpillar (CAT) Still Has 'Significant' Upside, JPMorgan Says in Upgrade

January 8, 2018 9:47 AM EST
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Price: $209.31 +1.78%

Rating Summary:
    20 Buy, 16 Hold, 5 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 10 | Down: 13 | New: 20
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Caterpillar (NYSE: CAT) shares rose 1 percent Monday morning on a strong upgrade from JP Morgan to Overweight (from Neutral) and new price target for $200.00 (from $144.00).

Analyst Ann Duignan sees "significant upside" remaining after acknowledging to clients that her team "missed out on CAT's outperformance in 2017." The analyst sees upside in the forward twelve months on the heels of Tax Cut benefits and the Jobs Act which will likely extend the company’s cycle in its N. American construction business.

Duignan sees upside on benefits of a low tax rate which supports higher through-cycle free cash flow and benefits from the Resource business which is entering the second year of an estimated 10-year upcycle. The analyst also forecasts that construction equipment sales could climb back to the 2005 peak of nearly 233,000 units which leaves the company as an outsized beneficiary of the potential upcycle given its leadership position in North America.

The new valuation at $200 represents nearly 18x free cash flow per share multiple on 2018 estimates. FY 2018 EPS estimate rises to $8.42 (from $7.94) and FY 2019 EPS estimate rises to $9.56 (from $8.98).

The new price target represents 23.5% upside from Friday's close.

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