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Baird cuts Caterpillar and United Rentals on valuation, sees 15-20% downside risk
Published Mar 27, 2023 09:42
© Reuters.
By Senad Karaahmetovic
Baird analysts downgraded Caterpillar (NYSE:CAT) to Neutral from Buy to send shares of the Irving-based construction equipment manufacturer lower on Monday.
The analysts see risks for rental/construction equipment manufacturers going forward. As a result, they downgraded Caterpillar as well as United Rentals (NYSE:URI) to Underperform from Neutral.
"We believe CAT shares are nearing a cyclical pivot point with relative stock performance responding to four fundamental factors: dealer stocking impact on sales growth, backlog progression, price/cost spread (which drives forward margin expectations), and dealer retail sales. We believe all four elements are likely to become headwinds for future stock performance," they wrote in a downgrade note.
Moreover, the analysts see a risk for valuation to contract toward the low end of the range, which could see shares trade in the $180-190 range. This target range implies a downside potential of about 15%.
On URI, the analysts wrote:
"The tight equipment supply/demand balance underpinning record 2022/1H23 results will shift as demand will slow while equipment supply will increase; utilization, pricing, equipment and rental margins should all come under pressure in 2024 as a result. Admittedly, the full impact on 2024 earnings is hard to estimate at this point."
The target range for URI stock is $285-300, signaling a downside risk of over 20%.
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