Top Stories
Top Stories
Investing

Caterpillar shares fall after Deutsche Bank downgrade: 'Synchronized global growth has collapsed'

Key Points
  • Deutsche Bank downgrades Caterpillar to hold from buy and cuts its 12-month price target to $128 from $152.
  • "Synchronized global growth has collapsed, the China Land Cycle is rolling over, ... Europe is slowing more than expected and the US is oversaturated with construction equipment," Chad Dillard says.
VIDEO3:1403:14
Deutsche Bank analyst explains his downgrade of Caterpillar

Shares of Caterpillar, a bellwhether for the global economy, fell Wednesday after Deutsche Bank downgraded the maker of earth movers and other construction equipment.

Deutsche Bank downgraded Caterpillar to hold from buy and cut its 12-month price target to $128 from $152. Caterpillar shares dropped 1.4 percent to $138.20 in premarket trading.

"Synchronized global growth has collapsed, the China Land Cycle is rolling over (and will continue to weaken despite the single positive data point this week), Europe is slowing more than expected and the US is oversaturated with construction equipment," analyst Chad Dillard said in a note to clients late Tuesday. "Each of these factors alone are powerful drivers of CAT's earnings, but together this synchronized slowdown will not only usher in a negative earnings revision cycle, but also make 2019 the cyclical peak."

"Synchronized global growth" was a phrase used by many investors in early 2018 to describe a rare scenario where every major economy was expanding at a brisk pace. That theory collapsed last year amid trade battles between the U.S. and major partners, mounting fears of a hard Brexit by the U.K. and a significant slowdown in China economic growth.

A better-than-expected manufacturing reading earlier in the week from China eased economic concerns a bit and boosted global stocks once again. This Deutsche Bank call flies in the face of those hopes for a comeback.

"Street numbers for 2019 and 2020 are 5% and 20% too high, but the current share price does not reflect this reality," Dillard said.

Caterpillar shares had rebounded by 10 percent in 2019 through Tuesday's close before Dillard's call.