Caterpillar (CAT) demonstrated some quality attributes relative to other original equipment manufacturers with growth in adjusted operating profit amid a decline in sales, margin expansion despite destocking and negative dealer retailer sales, and pricing over cost, BofA Securities said in a note Wednesday.
The firm said it still expects risks of an increase in destocking and construction industries’ pricing while the company maintains its earnings in a macroeconomic slowdown.
Caterpillar reported Q2 adjusted earnings of $5.99 per diluted share, up from $5.55 a year earlier. Analysts polled by Capital IQ expected $5.54. Revenue for the quarter was $16.69 billion, above expectations of $16.67 billion.
BofA said it is “too early to talk about ‘other side'” with price deflation, a decline in the non-residential construction sector and commodities under pressure.
“Yet the longer Caterpillar demonstrates a higher/resilient earnings per share profile, the next cycle EPS power comes into focus,” the firm added.
The company’s growth in power generation and data center sectors provides an offset to pressures from cyclical areas affected by higher interest rates but an increase in capacity will not contribute significantly “resulting in another ‘tight’ market next year,” according to the note.
Caterpillar’s growth will depend on several key factors, including the performance of copper, oil/rig count, the Chinese excavators market and end-user demand as the cycle eases.
BofA reduced the price objective on Caterpillar’s stock to $376 from $385 and reiterated its buy rating.