Caterpillar Stock Plunges on Cautioning of Margin Pressure in Q1

Caterpillar shares fell over 5% on Friday after the heavy equipment manufacturer cautioned that higher labour and production expenses could negatively impact its operating margins in the ongoing quarter.

The Deerfield, Illinois-based company reported quarterly adjusted earnings of $2.69​​ per share, beating the Wall Street consensus estimates of $2.26 per share. Caterpillar said its revenue jumped more than 22% year-on-year to $13.80 billion from a year ago. That too beat the market expectations of $13.15 billion.

“The beat was driven by higher other income and lower taxes while pricing added ~5% to the top-line. Dealer inventories decreased by $100mn in the quarter. Outlook: 1Q22 revenues are expected to be up YoY though Caterpillar (CAT) does see margin headwinds. Backlog up $2.5bn QoQ,” noted Stephen Volkmann, equity analyst at Jefferies.

Caterpillar stock fell over 5% to $201.4 on Friday. The stock fell over 2% so far this year after surging about 14% in 2021.

Analyst Comments

“While 1Q22 margin commentary is likely reflected in consensus to some extent, we think 4Q21 margin misses across all three segments is likely to mitigate estimate momentum exiting the print. Top-line momentum (particularly within Construction) remained resilient,” noted Courtney Yakavonis, equity analyst at Morgan Stanley.

“While retail sales should remain positive, we see less supportive replacement dynamics limiting the magnitude of the construction equipment recovery – limiting cycle over cycle growth in CI. E&T growth will likely see cycle-over-cycle deterioration in O&G revenues as well, as relatively young asset bases and limited capex improvement at the Oil Services level weigh on demand. While incremental have remained more resilient in the near term, we see limited scope for outsized incremental margin performance as well – given that consensus continues to embed more resilient margins. We see a less compelling re-stock opportunity vs. other Machinery end markets (e.g. Ag) as well.”

Caterpillar Stock Price Forecast

Nine analysts who offered stock ratings for Caterpillar in the last three months forecast the average price in 12 months of $240.00 with a high forecast of $290.00 and a low forecast of $164.00.

The average price target represents an 18.49% change from the last price of $202.55. Of those nine analysts, six rated “Buy”, two rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $164 with a high of $305 under a bull scenario and $94 under the worst-case scenario. The investment bank gave an “Underweight” rating on the heavy equipment manufacturer’s stock.

Several other analysts have also updated their stock outlook. Barclays raised the target price to $225 from $220. Citigroup lifted the price target to $230 from $225. Credit Suisse upped the target price to $275 from $240. UBS increased the target price to $250 from $235.

However, technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

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