Caterpillarposted quarterly profit that beat Wall Street’s expectations on Wednesday. With an overweight rating on the stock and a $108 price target, Ann Duigan, JPMorgan machinery analyst, called Caterpillar “a global economic play.”
However, Caterpillar shares are down 20 percent over the past 12 months. What should investors make of these mixed messages?
Duigan attributed the disconnect between the market and her forecast to current global economic uncertainty. “We’ve heard a lot about mining companies slowing their capex spending plans or cutting back on capex and there’s just a lot of uncertainty,” she said.
Despite the economic environment, Duigan said she is confident in the price target. The good news is she is not the only one anticipating an uptrend.
Caterpillar CEO Doug Oberhelman, told CNBC’s “Squawk Box” that he is “very bullish for the long-term.”
After the positive earnings report, the world’s largest maker of construction equipment raised its 2012 profit forecast citing improvement in the global economy. Caterpillar now expects to earn $9.60 per share in 2012, up 10 cents from the previous forecast.
“The big question mark is the politics,” Oberhelman said. “The politics in Europe, the politics here. That’s the cloud that’s got all of us very worried and concerned, but having said that we think we’re going to get through all that and in the end we see pretty good things coming through the rest of the year and onto 2013 and beyond."
Both Oberhelman and Duigan based their forecasts on the long-term outlook of the global economy.
“Caterpillar is much more leveraged to what is going on globally now that they are considered a mining play,” Duigan said, adding that the stock will continue to be impacted not only by what’s going on in the U.S., but also in China, Brazil and Europe.
As long as global gross domestic product remains positive, Duigan said, the world will consume more hard commodities and boost the stock. “We think that unless the world goes into a global recession, then demand for hard commodities will continue to rise,” she said.
Although second-quarter earnings beat expectations, Caterpillar executives warned that third-quarter sales tend to be lower as a result of summer production slowdowns.
—By CNBC.com’s Madeline Laskoski
Additional Views: Credit Suisse Cuts Estimates to Caterpillar ______________________________
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JPMorgan has provided investment banking and non-investment banking services and acted as a manager in public offering of securities of CAT within the past 12 months.