Caterpillar raised to Buy at Bank of America on multi-year growth prospects

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By Senad Karaahmetovic

Bank of America analysts upgraded Caterpillar (NYSE:CAT) to Buy from Neutral with a $295 per share price target (up from $217 per share).

The analysts highlighted 5 key reasons they are turning more bullish on CAT stock and why it may outperform going forward.

1. Low risk of notable EPS decline Q4/Q1 given price vs cost tailwind;
2. Backlog falls yet lead indicators improve 2H;
3. 2023: trough EPS in a recession year higher vs expectations;
4. 2024+: as investors look to a ‘new economic cycle’, CAT’s EPS power attractive;
5. 2022 events underscore secular pressure abating.

The analysts also believe that investors are likely to be surprised by CAT’s 2023 EPS results despite it most likely being a recession year.

“As macro headwinds ease in 6-9 months and investors look towards a new cycle, CAT’s multi-year growth prospects screen positive: capex is higher in a world that is effectively ‘short’ copper/oil/gas, long tail of fiscal stimulus drives construction project,” they said in a client note.

Caterpillar stock is up about 0.5% today.