A hundred-ton Caterpillar truck
DAVID BOILY/AFP/Getty ImagesCaution won the day in trading of Caterpillar stock on Wednesday.
One Wall Street analyst began coverage of the maker of heavy machinery with a Buy rating, while another downgraded the stock to Hold. Caterpillar (ticker: CAT) stock closed down 0.9% at $192.34, while the S&P 500 gained 1.4%.
That is a sign that investors may have put more weight on the downgrade from Citigroup analyst Tim Thein than on the new Buy rating from Vertical Research analyst Brett Linzey.
Thein downgraded shares from the equivalent of Buy to Hold, even as he raised his target for the stock price to $205 from $175. He says that while the risks and potential rewards of buying the stock are more or less equal, and though conditions are getting more favorable for Caterpillar, there is “not enough upside for a Buy” with the stock above $190.
To be more positive on Caterpillar stock, Thein wants a better sense of how earnings will turn out in 2022. The company is expected to make roughly $10 a share next year, according to Wall Street consensus estimates, compared with an estimated $5.44 for 2020.
Linzey, for his part, is upbeat on Cat stock. His $230 price target matches the highest call on the Street coming into Wednesday. Baird analyst Mig Dobre pegged the stock at that level in early January, calling Cat a top 2021 pick.
He believes that several end markets the company serves, including energy, mining and construction, are improving. Dobre projects $11.50 in per-share earnings for Cat in 2022, above the Street consensus.
Linzey is also high on other machinery stocks, including Deere (DE) and Rexnord (RXN), rating both at Buy. He, like Dobre, likes the economic set up for cyclical stock in 2021 and isn’t as worried as Thein about Cat’s valuation.
The Wednesday bull-bear debate reflects the blend of sentiment among Wall Street analysts. Roughly 50% of those covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 57%.
The bulls are focused on rising commodity prices and the economic recovery under way. The bears want to take money off the table, given that Cat stock rose about 68% over the past nine months.
Barron’s falls in the bull camp. We recently wrote positively about industrial stocks including Caterpillar, believing that the economic recovery and higher infrastructure spending would boost the shares in 2021 and beyond. Since that article appeared in October, Caterpillar stock is up about 21%, better than the 9% comparable gain of the S&P 500.
Still, that is only about three months of outperformance. The jury is still out.
Write to Al Root at allen.root@dowjones.com
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January 21, 2021 at 05:25AM
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Caterpillar Stock Slips as Downgrade Outweighs Call to Buy - Barron's
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