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UPDATE: Bernstein Downgrades Caterpillar (CAT) to Market Perform

August 3, 2022 5:57 AM EDT
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Price: $162.44 --0%

Rating Summary:
    19 Buy, 17 Hold, 5 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 10 | Down: 7 | New: 33
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(Updated - August 3, 2022 5:58 AM EDT)

Bernstein analyst Chad Dillard downgraded Caterpillar (NYSE: CAT) from Outperform to Market Perform with a price target of $195.00.

The analyst comments "We are downgrading Caterpillar from Outperform to Market-Perform and adjust our price target to $195, implying 6% potential upside. Several signs point to order growth markedly slowing in 2H22 then turning negative in 2023, CAT has become too reliant in the current environment on pricing to drive growth, and the risk of negative earnings revisions to 2023 and 2024 estimates of 16% and 39% (45% in our recession scenario), respectively, has not been fully factored into shares. With shares outperforming the broader market by ~5% YTD and a risk/reward of 1:1 at the current share price, we find it hard to put an incremental dollar of capital to work in this stock right now. CAT's challenges are about to go beyond the supply chain-driven execution problems; end market demand is about to fall significantly. On-the ground sentiment (CFO Optimism index) has deteriorated at the fastest rate outside a recession, but street estimates, which usually track it, have decoupled (a re-coupling suggests 16% risk to '23 estimates). The monetary stimulus-driven revenue growth algorithm, which has driven CAT (and the rest of machinery) for the last decade, is breaking down, as high inflation limits government's ability to act. Demand in CAT's end markets is cracking — 2Q22 retail demand was negative (-3% Y/Y) and such declines always last several quarters (cumulatively falling by -30%, on average). The pockets of immediate weakness include Europe, N. America residential, and China, while order growth in mining is starting to moderate. We expect the first evidence to show up in 2H22 as order growth turns from +13% in 2Q to down 5-10%."

For an analyst ratings summary and ratings history on Caterpillar click here. For more ratings news on Caterpillar click here.

Shares of Caterpillar closed at $183.51 yesterday.


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