Caterpillar (CAT) Dealers are Bulled-Up, Company Not Ramping Production Fast Enough- Credit Suisse

Credit Suisse analyst Jamie Cook reiterated an Outperform rating and $123 price target on Caterpillar (NYSE: CAT) following a strong dealer survey.

Cook notes strength from the first quarter continued well into the end of the second quarter. "Since early 2017, forecasts have increased from flat to up 5% to up 5-10% for the US dealers," he notes.

He said the biggest impediment that prevents the US dealers from exceeding their initial forecasts even further is the availability of equipment broadly as suppliers and/or CAT are not ramping production quickly enough.

Further he said some dealer selling out of the rental fleet to meet new equipment demand.

Also, dealers cited parts availability as a bigger issue than machines availability.

"Still, dealers remain optimistic on the end market front, confident the cycle is turning, even with increasing evidence that an infrastructure bill is further out," he added.

Dealers noted that the backlogs of contractors are growing, reflecting continued strength in residential, non-residential construction and base hit infrastructure projects, he further commented. Despite the recent pullback in crude prices, dealers are not yet seeing any impact on demand and have fairly good backlog for the next 3-6 months.

Also, pipeline work is very strong and expected to continue into 2018.

Overseas, European demand is up in the single digit range and Asia Pacific is on fire. Strength in Indonesia continued, largely driven by mining that is expected up in the double digit range.

Also, China is very strong and while growth is expected to moderate, it is still expected up in the double digit range.

The firm tweaked numbers higher to $4.20 from $4.10 for FY2017 and believe CAT is set up well to raise estimates again in Q2'17.

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 $103.93 yesterday.

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