Deutsche Bank Downgrades Caterpillar to Hold on Limited Upside

© Reuters.

By Senad Karaahmetovic

Deutsche Bank analysts cut the rating on Caterpillar (NYSE:CAT) shares to Hold from Buy with a price target of $221 per share (up from $196).

The analysts noted that the downgrade isn’t a direct result of the company’s Q3 results. Instead, the analysts are “drawing a line in the sand” on intrinsic value. They previously saw a “material upside to an estimated intrinsic value of $220/share.”

On why the analysts still downgraded CAT stock, they noted that “there is simply not enough upside potential left vs. the current stock price to maintain a Buy rating.”

“We also feel that in many ways, recommending CAT after the recent move in the stock is playing with fire, for several reasons: 1) It is also nearing the top of its recent, fairly consistent $180-220 trading range, 2) It could be difficult for such a macro/commodity-driven stock to generate alpha if we are indeed moving into a broader global recession, and 3) The company's backlog has likely peaked (or is near peak) - which has mattered to the stock in the past,” they added.

Similarly, Morgan Stanley analysts reiterated an Underweight rating on Caterpillar as they see “the limited scope for growth into 2H23 - limiting the durability of top-line upside beyond 1H23.”

Still, they hiked the price target to $174 from the prior $143 per share to reflect higher estimates post earnings.

CAT shares are up just over 1% today.