Shares of Caterpillar (NYSE:CAT) rose 1.83% after RW Baird upgraded the company to outperform from neutral, predicting that the heavy construction equipment maker should experience a significant sales increase in response to an apparent end of the commodity down cycle.
Last April 23, the Peoria, Illinois-based company reported increased first quarter net income of $1.81 per share from $1.44 per share a year earlier, higher than the average estimate of $1.35 per share.
But, contrary to RW Baird’s optimistic outlook, Caterpillar cautioned that sales and profit in the remaining three quarters of 2015 would be lower than in the first quarter because of the severe slump in mining and in construction outside of North America.
Caterpillar has even closed factories to adjust to lower demand. But, RW Baird sees more upside, setting a US$101.00 price target on the stock, up from their previous price target of $80.00.
Analyst Mig Dobre suggests that commodity price drop of the past few years matches the that of the ‘1980's bust’ and that only the great Depression of the 1930’s could be worse. Dobre says anything so excessive is highly improbable, noting the stimulus from central banks around the world to sustain the economy.
The optimism is not exclusive to one firm. Analysts at TheStreet upgraded shares of Caterpillar from a "hold" rating to a "buy" rating in a research note on Thursday. Analysts at Stifel Nicolaus reiterated a "buy" rating on shares of Caterpillar in a research note on Monday, April 27th.
Barclays was quicker to see optimism, boosting the target price from US$90.00 to US$93.00 with an "overweight" rating in a research note dated April 24.
Two years ago, Caterpillar cut production in response to reports from mining executives who, while bullish on existing mining production, feared near term expansion.