Pro Analysis

Caterpillar earnings will 'beat all year long,' Bank of America says

George Frey | Bloomberg | Getty Images

Industrial giant Caterpillar is on the cusp of a big year of earnings growth and potential new business strategy, Bank of America Merrill Lynch analysts said Thursday.

BofAML upgraded the stock to buy from neutral and raised its price target to $120, nearly 20 percent above where Caterpillar closed Wednesday. The stock, which traded flat Thursday morning, is up 8.2 percent this year, already beating the S&P 500.

"CAT is set up to beat all year long," research analysts Ross Gilardi, Michael Feniger and Natalie O'Dea said in the note. They said the consensus estimate for second-quarter adjusted earnings is $1.10 a share, flat from the prior year and down 14 percent from the first quarter.

Such a decline is historically rare. Since 1995, Caterpillar's second-quarter earnings have rose an average 35 percent from the prior quarter and only fallen twice, in 2011 and 2015, the BofAML analysts said. They expect second-quarter earnings of $1.28 a share.

The analysts said other reasons supporting the case for Caterpillar include: