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Truist Securities sets $390 target on Caterpillar shares, cites earnings potential

EditorEmilio Ghigini
Published 14/03/2024, 12:42
© Reuters.

On Thursday, Truist Securities initiated coverage on shares of Caterpillar Inc. (NYSE: NYSE:CAT), a leading manufacturer of construction and mining equipment, with a Buy rating. The firm has set a price target of $390.00 for the company's stock. The new coverage highlights the belief that the market does not fully recognize Caterpillar's earnings power.

According to Truist Securities, Caterpillar's financial performance in the fiscal year 2023 marked a record year for earnings, yet the firm anticipates further growth potential. Their estimates for 2025 and 2026 are significantly higher than the current consensus, suggesting more optimistic expectations for the company's future performance.

The analyst pointed to the Construction Industries margins as a sign of the potential for increased earnings in other segments, such as Resource and Energy & Transportation. These segments are reportedly underperforming relative to the Construction division, but they present favorable competitive dynamics that could drive margin expansion.

Under the leadership of Chairman and CEO Jim Umpleby, Caterpillar has adopted a conservative management approach. This has led to an increase in the company's through-cycle operating margin targets by 100 basis points and an elevation of through-cycle free cash flow projections from $4-8 billion to $5-10 billion. The management has committed to returning this increased cash flow to shareholders.

The report also suggests that Caterpillar's earnings resilience is likely to be bolstered by strategic investments in service and aftermarket operations, as well as improved management of channel inventory. This strategic focus is expected to provide a buffer against market fluctuations and contribute to the company's steady financial growth.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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