Markets

Goldman downgrades Caterpillar, citing weakness in China business amid trade war

Key Points
  • Goldman Sachs lowered its price target on Caterpillar to $130 from $156
  • "Visibility on operating profit growth for CAT off of 2019 levels is low, in our view, driving balanced risk-reward for the stock," Goldman Sachs analyst Jerry Revich said.
Jim Umpleby, CEO of Caterpillar Inc.
Adam Jeffery | CNBC

Caterpillar shares were downgraded by Goldman Sachs on Thursday, with the brokerage saying it could no longer justify its "buy" rating on the stock due to headwinds in the China and North America construction equipment markets.

The firm downgraded the stock to "neutral" from "buy," and cut its price target to $130 a share from $156 per share.

Last Thursday, President Donald Trump tweeted that the U.S would be imposing a 10% tariff on $300 billion worth of Chinese goods beginning September 1. Since then the construction machinery and equipment maker is down 8%.

"For the first time since we upgraded CAT to Buy in October 2016, we expect EBIT to decline in FY2 driven by meaningful production cuts in North America and China construction equipment, more than offsetting our forecasts for a Resource Industries recovery," Goldman Sachs analyst Jerry Revich said.

"Visibility on operating profit growth for CAT off of 2019 levels is low, in our view, driving balanced risk-reward for the stock," he said.

The company reported a disappointing second quarter earnings report on July 24 and cited rising costs due to tariffs.