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Caterpillar's Earnings Were Great. Why the Stock Got Downgraded.Caterpillar's Earnings Were Great. Why the Stock Got Downgraded. Barron's (Online); New York Not everyone on Wall Street sees upside for Caterpillar stock, even though the company turned in third-quarter earnings that were much better than expected. Things are better than expected for the earth-moving giant. But on Friday, Deutsche Bank analyst Nicole Deblase downgraded Caterpillar (ticker: CAT) shares to Hold from Buy after the company disclosed its results on Thursday. The report was impressive. Caterpillar posted earnings per share of $3.95, while Wall Street was looking for roughly $3.20. The stock rose as much as 10% in Thursday trading, hitting $217.13, before closing at $212.14, up 7.7%. Deblase recognizes that the quarter was good. She raised her target for the stock price to $221 from $196 while lowering her rating. "There is simply not enough upside potential left [versus] the current stock price to maintain a Buy rating," Deblase wrote in a research report. It will be hard for Cat stock to trade substantially above $220 a share in the midst of a global economic slowdown, according to the analyst. Deblase isn't the only one worried about what happens next. Bernstein analyst Chad Dillard suggested the latest numbers could be as good as it gets for Caterpillar in a Thursday research report following the earnings. "During the call, management called out oil & gas, power generation, marine and non-resi construction as areas of strength," wrote Dillard. "As the market turns the calendar to '23 we expect this list to narrow." Caterpillar's backlog of orders should start to fall, says the analyst. When that happens, the stock tends to trade closer to 10 times the earnings per share expected for the next year. Cat stock trades for about 15 times estimated 2023 earnings today. He rates Cat stock Hold and has a $195 price target. Not everyone is as bearish as those two. Baird analyst Mig Dobre rates Caterpillar stock at Buy and raised his price target to $242 a share from $224. Dobre expects profit margins to improve in the fourth quarter as supply chain snarls untangle, saying earnings are likely to rise in 2023. He raised his estimate of 2023 earnings per share to $15.65 from $14.40. Caterpillar is expected to generate about $13 in per-share earnings in 2022, so $15.65 would represents strong growth. Dobre's call is about $1.30 higher than the Wall Street consensus estimate for 2023. Overall, 50% of analysts rate Cat stock at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average analyst price target is now $225 a share, up from about $213 just before the third-quarter numbers were released. Coming into Friday trading, Cat stock was up about 3% so far this year after Thursday's jump, while the S&P 500 and Dow Jones Industrial Average were off about 19% and 12%, respectively. The stock gained about $4 to $216 early on Friday. |
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