After Big Gains Analysts Say Caterpillar Can Go Higher Still

| About: Caterpillar Inc. (CAT)

By Sheena Lee

Caterpillar (NYSE:CAT) may not be the most glamorous of companies, but its performance has been impressive, capped by stellar fourth quarter earnings. The heavyweight equipment maker’s cash flow rose to an all-time record, helped by strong demand in markets like China, Latin America and Australia. Caterpillar’s stock price has almost doubled over the last year, yet analysts think it still has room to move higher.

The median price based on the the 14 most recent targets tracked by Alacra Pulse is $116.25, increasing from $95 in our November prognosis and 16% higher than Wednesday’s closing price of $100.02. The mean target has risen to $112.75 from $93.53. Out of the 14 analysts, 11 have a Buy rating and three have a Neutral rating.

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

(Click to enlarge)

The most bullish is analyst Robert McCarthy of Robert W. Baird. who has a Buy rating and hiked his price target on Caterpillar to $129 from $99 this week. Incremental margins, excluding the impact of major acquisitions, in 2011 will be close to 25 percent after reaching 30 percent in 2010, Caterpillar said. "That’s dramatically better than the best they managed for the last decade," said McCarthy.

"The top line just blew away our expectations for the quarter, but the longer-term questions around the company improving its core operating performance remain," said Joel Levington, managing director of corporate credit at Brookfield Investment Management.

Jamie Cook of Credit Suisse reiterates his Outperform rating on the firm and raised his price target this week to $121 from $110, while Raymond James analyst Theoni Pilarinos raised its price target on the stock to $116 from $95.

"What we find particularly positive is that strong sales gains were recorded in all geographic regions, and we see that continuing in ’11," said Standard and Poor’s Michael Jaffe, who also upped his target to $121 from $95 and kept his Buy rating.

Jefferies & Co. analyst Stephen Volkmann, who maintains a buy rating for Caterpillar, raised his target to $110 from $95. "Quarterly they did a little bit better revenue-wise and in their earnings per share." Volkmann said. "I’d expect them to trade up."

Morgan Stanley analyst Robert Wertheimer said he expects the firm to post 2010 EPS of $4.15, up from $3.97 per share, and 2012 EPS of $8.02, up from $8.00. The investment bank raised their target on CAT to $110 from $105 and maintains its overweight rating.

"They’re (Caterpillar) a little more optimistic now and its all outside of the U.S. Its all China, Asia and Latin America right now," said Eli Lustgarten, senior analyst at Longbow Research. "Management indicated that the emerging markets like China will remain strong, but the bigger story is with the prospects of developed countries like the U.S. and Japan," said Lustgarten.

Rising commodity prices have heightened demand for Caterpillar’s mining gear, particularly in emerging markets."Their order backlog is the highest since late 2008, and their dealer inventories are considered too low, especially in the rental channel," JPMorgan analyst Ann Duignan noted in a report. Duignan has an Overweight rating and lower-end $99 price target on the firm.

Caterpillar is also hiring again. After cutting nearly 30,000 full-time and contract jobs worldwide during the recession, the Peoria, Illinois-based company now says it rehired about 8,200 full-time workers in 2010 — two-thirds of them outside the United States, said Reuters.

"We feel good," said CEO Doug Oberhelman. "The outlook reflects our expectation that the world economy will continue to recover."

Source: Alacra Pulse, The Street, Bloomberg, Medill, SmartTrend, Reuters,, CNBC