“Synchronized Global Growth Has Collapsed”: Why Deutsche Just Downgraded Caterpillar

Wednesday, April 3, 2019
By Paul Martin

by Tyler Durden
Wed, 04/03/2019

In a world where Caterpillar is considered a global industrial bellwether and a key indicator of economic inflection points, then today’s downgrade of Caterpillar by Deutsche Bank is a harbinger that the recent risk on euphoria may be coming to an end.

Shares of the industrial giant fell after Deutsche Bank downgraded CAT to Hold from Buy, slashing its price target on CAT from $152 to $128: Explaining his rationale, DB’s Chad Dillard said that “we are adjusting our 2019 EPS from $12.41 to $11.80 (vs. guide of $11.75-$12.75 and street of $12.22) and our 2020 EPS from $13.48 to $10.40 (vs. street of $13.06) to reflect our lowered expectations for global growth. We value CAT on 6.5x our 2019 EBITDA for ME&T (vs. 7.5x previously, with the shift reflecting our updated view that we are at peak) and assign a 1.5x price to book value for the FinCo to arrive at our $128 price target.”

Revealing what he thinks is the biggest risk to the bull case for CAT, Dillard says is if CAT’s “backlog growth turns negative and it is becoming increasingly clear that it will within this next quarter.” In fact, DB sees the company’s backlog going negative in the next 3 months:

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