Bank of America positive on Caterpillar as biggest dealer reports record results

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Bank of America positive on Caterpillar as biggest dealer reports record results
Credit: © Reuters.

By Michael Elkins

Bank of America reiterated an Outperform rating and $295.00 price target on Caterpillar Inc. (NYSE: CAT ) after the construction equipment maker’s biggest dealer, Finning reported a solid 4Q resulting in a record 2022.

Finning was restrained in providing an FY outlook and reluctant to guide in the 2H given macro uncertainty. However, analysts at BofA found key aspects of the 4Q report, and the earnings call relevant for CAT. The dealer reportedly maintained a record backlog of C$2.5bn, flat QoQ, in spite of a big quarter of equipment deliveries. The strong backlog implies a strong order intake to backfill the backlog.

The analysts believe that the re-stocking tailwind will likely fade in 2023, yet there are no signs of de-stocking as backlogs remain elevated driven by mining and energy. Finning also announced that their parts department expects product sales to grow in 2023 vs 2022, a positive for Caterpillar’s parts business.

BofA wrote in a note, “In our view, unique macro and business cycle factors are underpinning stronger earnings: China re-opening, commodity capex bias to upside post years of underinvestment, and powerful shift in construction spending mix towards heavy/infrastructure projects vs light non-residential construction.”

Shares of CAT are up 0.13% in mid-day trading on Wednesday.

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