Analysts See Caterpillar on the Move

Nov.16.10 | About: Caterpillar Inc. (CAT)

By Sheena Lee

Caterpillar’s (NYSE:CAT) share price has dipped slightly since its announcement Monday of the planned $7.6 billion acquisition of Bucyrus International (NASDAQ:BUCY). But analysts see the move as further evidence of recovery in the heavy equipment industry and for Caterpillar. Several have raised their price targets since the company posted strong quarterly earnings [see transcript].

CEO Doug Oberhelman has announced plans in the past five months to build factories in Brazil and China, where economic growth is outpacing the U.S. “Brazil is red hot,” said Oberhelman in an interview with Bloomberg. “We are adding a second plant in Brazil. We’ve had a number of announcements in China.”

The median price based on the the thirteen most recent targets tracked by Alacra Pulse is $95, up from $85.50 a month ago and 16% higher than Monday’s closing price of $81.82. The mean target has risen to $93.53 from $86.39.

Current 12-month price targets of selected sell-side and independent analysts. Click image to enlarge.

Click to enlarge

Of these 13 analysts, 8 have a positive rating and 5 are neutral.

Credit Suisse equity analyst Jamie Cook expects sales at Caterpillar to rise 10 percent to 15 percent in 2010, with sales forecast to rise “at least 20 percent” in 2011. He reiterated his Outperform rating and has a price target of $110. He said the commodities and public infrastructure markets were areas of particular strength. “While CAT is paying a hefty 32% premium for BUCY, we believe that the BUCY franchise is a strong strategic fit.”

Susquehanna analyst Ted Grace today initiated coverage on the company with a Positive rating and a target of $105:”We believe CAT remains a ‘must own’ among higher-beta, large-cap US machinery stocks given its strong commodity leverage, emerging markets exposure, and operating leverage with 30% upside to our $105 12-month price target.”

Morgan Stanley analyst Robert Wertheimer today reiterated his Overweight rating on the stock, raising the target to $105 from $100. He expects higher sales and improving margins, and said he saw a lot of progress following a plant and management visit.

Jefferies & Co. analyst Stephen Volkmann maintained his Buy rating on the company and increased his price target to $95 from $85. ”We continue to see upside for the shares as the market gains more confidence in the company’s $8 2012 EPS target. CAT generally trades at 12-14x earnings, suggesting 20-40% upside over the next 12-18 months.”

Citigroup analyst Timothy Thein boosted price target to $85 from $78, and reiterated a Hold rating. Thein said strong commodity prices are driving miner capex intentions well above prior peaks. ”Signs of life in developed market construction segments, and an eventual dealer restock cycle all support our optimistic view towards top-line recovery in 2o11,” he added.

Barclays analyst Meredith Taylor also lifted their price target on shares of Caterpillar to $85 from $76. The analyst reiterated an Equal- Weight rating citing the company’s new guidance. UBS analyst Henry Kim raised the heavy machinery maker’s price target to $85 from $74 and reiterated a Neutral rating.

Theoni Pilarinos at Raymond James, who downgraded the equipment giant to Market Perform from Outperform after the earnings results, has had a change of heart. Today he reinstated an Outperform rating and raised his price target to $95 from $85.

Not all analysts are so positive, however: Stifel Nicolaus analyst Barry Bannister reiterated the Sell rating he has held for the last year.
Caterpillar’s share price has consistently outperformed the S&P 500 since July 2009.
Meanwhile, Bucyrus was downgraded by several analysts, mostly to a neutral rating.

(Sources: Alacra Pulse, American Banking News, SmartTrend, Benzinga, Wall Street Journal, StreetInsider, Bloomberg BusinessWeek, CNBC)