Although investors are increasingly concerned about how the construction industry will fare during an economic slowdown, Bank of America is increasingly bullish on Caterpillar. Analyst Michael Feniger upgraded the stock to buy from neutral. Its price target of $295 implies a 15.7% upside potential from the stock’s close on Thursday. “While CAT is vulnerable to a slowdown, several unique dynamics from a macro and business cycle perspective may underpin significantly higher ‘through’ earnings compared to expectations,” Feniger said in a note to clients. “We believe there is an underappreciated roadmap that could take the CAT story to the top and drive outperformance.” Given the tailwinds from price increases, the stock should be sheltered from broader macroeconomic uncertainties in the near term in Q4 2022 and Q1 2023, Feniger said. He called a 14% price increase in the third quarter, the highest in a decade, a “tipping point.” Still, given the impact of recession concerns on demand, the company’s backlog is likely to shrink. However, he said leading indicators are likely to improve in the second half of the year, pointing to a recession-avoidable scenario. The headwind, which is unique to the company, is also improving. He cited the company’s focus on electric and autonomous vehicles as an improvement that will help the company over the long term. Feniger said investors will look back at the company’s earnings per share in 2023 and be pleasantly surprised as China’s reopening, rising commodity investments and a shift towards larger construction projects will help erase losses due to the deteriorating economic environment. He said the outlook for growth for the full year is positive. – CNBC’s Michael Bloom contributed to this report.
https://www.cnbc.com/2023/01/13/bank-of-america-upgrades-caterpillar-to-buy-says-construction-stock-has-roadmap-to-outperformance.html Bank of America upgrades Caterpillar to buy, says construction stocks have “roadmap to outperform.”
