Caterpillar stock rises to 4th straight record after BofA analyst becomes top bull on Wall Street

Shares of Caterpillar Inc. rallied Friday to a fourth straight record close, after BofA Securities analyst Michael Feniger turned bullish on the assumption that the construction- and mining-equipment maker will weather a 2023 recession higher than many might expect.

Feniger raised his rating to purchase from neutral. He boosted his price goal on the stock

by 36%, to $295 from $217, with the brand new goal implying 14.1% upside from Friday’s close.

The brand new goal is the very best among the many 27 analysts surveyed by FactSet, making Feniger the brand new top bull for Caterpillar on Wall Street.

“In our view, investors are more likely to look back at CAT’s EPS [earnings per share] in 2023 — a recession 12 months — positively surprised,” Feniger wrote in a note to clients.

The stock climbed 1.3% to $258.46 on Friday, to log a fourth straight record close, and the fifth in six sessions. It has gained 7.9% this 12 months after rising 15.9% last 12 months, while the Dow Jones Industrial Average

fell 8.8% in 2022.

Despite the heightened uncertainty over the economic outlook, Feniger believes Caterpillar’s outlook for the fourth quarter, of which ends up are due out at the top of January, and the primary quarter to be “somewhat stable.”

That’s because he believes the corporate’s third-quarter results marked an “inflection point,” wherein its biggest price increases in a decade greater than offset manufacturing costs. Rising prices and moderating costs can assist overcome Caterpillar overcome rather a lot.

“At a time of heightened macro uncertainty and investor expectations of a volatile earnings season, we don’t see a risk of great earnings deterioration for CAT over the subsequent 3-6 months,” Feniger wrote. “CAT’s strong backlog, seasonality & rising price vs cost tailwind is more likely to help offset headwinds.”

And while earnings are more likely to be hurt as a recession unfolds, BofA Securities expects that recession to be the third-shallowest in the fashionable era. And subsequently, the underside in Caterpillar’s earnings this 12 months will likely be “significantly higher” than what’s currently expected.

And once the recovery begins, in the subsequent six to nine months, he believes Caterpillar should see strong earnings growth, given pent-up demand for oil, gas and copper, a shift toward heavy construction and infrastructure and because the company’s customers are of their healthiest financial position in years.

“In our view, CAT’s multiyear earnings growth prospects are somewhat favorable once economic headwinds dissipate,” Feniger wrote.

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