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Caterpillar stock ‘downgraded’ despite strong results for Q3

on Oct 28, 2022
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  • Caterpillar Inc had a better than expected third financial quarter.
  • Deutsche Bank's Nicole Deblase still downgraded CAT to "hold".
  • Caterpillar stock has already rallied about 35% in thirty days.

Caterpillar Inc (NYSE: CAT) is up another 3.0% this morning on solid results for its fiscal third quarter. But a Deutsche Bank analyst says that’s just about it for shares of the construction equipment manufacturer.  

Caterpillar stock lacks a meaningful upside

Nicole Deblase now rates this Fortune 500 company at “hold”. Her price objective of $221 a share doesn’t represent a meaningful upside from here.

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To be clear, the analyst wasn’t put off by the quarterly numbers. She’s just of the view that Caterpillar stock, having climbed about 35% over the past thirty-days has already had its run.

The quarter was really good. But we have to draw a line in the sand on intrinsic value. Despite the fact that we did raise our price target by 13% to $221, there’s simply not enough upside potential left to maintain a buy rating.

On the plus side, the Deerfield-headquartered firm did maintain its dividend at $1.20 a share this quarter.

More reasons to take profits in CAT

In its quarterly update, Caterpillar said it was turning to price increases to expand profit margins even in the face of cost inflation. Still, Nicole Deblase said in her note:

In many ways, recommending Caterpillar stock after the recent move is playing with fire for several reasons, [including] that it’s nearing the top of its recent, fairly consistent $180 – $220 trading range.

Owing to the exposure to “commodities” and macro at large, she’s concerned about its ability to stand a global recession as well. According to the Deutsche Bank analyst, backlog has also peaked at CAT.

Earlier in October, the Board of Directors allowed Jim Umpleby to “not” retire and retain his position as the Chairman and CEO of Caterpillar Inc.