By Senad Karaahmetovic
UBS analysts downgraded Caterpillar (NYSE:CAT) stock to Sell from Neutral with the price target of $225 per share (down from $230.00).
The analysts don’t think there is enough cyclical momentum to justify the current valuation.
“While we don't think the cycle is over, we don't expect substantial earnings growth (or upward estimate revisions) for 2024-25. Backlog growth has been decelerating and appears set to roll over, and end market momentum is flattening in parts of construction and oil & gas,” they wrote in a client note.
While Caterpillar recorded a 27% EPS growth in 2022, the analysts expect this to slow down to 16% this year and to just 4% in 2024. They expect the 2025 growth to be flat.
“CAT is trading at 14-14.5x consensus 2024E EPS, closer to a mid-cycle than a peak multiple, indicating investors expect meaningful growth in 2024 and beyond. We expect the multiple to compress as investors taper 2024-25 growth expectations, and we think risk/reward skews to the downside,” the analysts wrote in a client note.
CAT stock trades over 1.6% lower in premarket Friday.