Caterpillar (CAT) Expands O&G Offering by Buying Weir Assets at Cyclical Low - Jefferies

October 6, 2020 7:12 AM

Jefferies analyst Stephen Volkmann reiterated a Hold rating and $130.00 price target on Caterpillar (NYSE: CAT) after the company announced the purchase of Weir Group's Oil & Gas assets for $405mn in cash. The purchase expands CAT's product offering to include pumps, wellhead and pressure controls in addition to the current engine and transmission capabilities.

The analyst stated "CAT is purchasing this asset at what appears to be a cyclical low, which should represent good value as end markets recover, though the timing of recovery remains uncertain". "The Oil & Gas division of Weir Group was expected to generate ~$445mn in revenues for 2020, a cyclical low based on Consensus estimates, having produced $1.04bn in revenues in 2018 with an EBIT margin just over 12%. Not surprisingly, the business is expected to operate at a loss in 2020 and around breakeven in 2021. The addition of the pump, wellhead and pressure controls products the division of Weir Group produces will help to fill out CAT's current offering of oil & gas products
creating more of a one-stop shop opportunity for existing customers".

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Shares of Caterpillar closed at $153.49 yesterday.


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