Wells Fargo Remains Sidelined on Caterpillar Inc. (CAT) in Wake of Sharp Sales Declines

We expect negative impact on the stock and remained concerned about potential H2:16, says Wells Fargo

Caterpillar Inc. (NYSE:CAT) revealed that retail sales for the three months ending in July reflected trends remained weak. In reaction, Wells Fargo analyst Andrew Casey reiterates a Market Perform rating on shares of CAT with a valuation range of $77 to $80.

Retail sales of Machines dropped for the 44th month and Energy and Transportation sales dipped year-over-year for the 17th consecutive month. The analyst notes that July machine retail trends declined from June, with both resource industries falling 42% year-over-year, a more profound decline in comparison to June’s 30% drop year-over-year, and construction industries down 10% year-over-year, a harsher drop than June’s 6% decline year-over-year.

From Casey’s perspective, he asserts, “We expect negative impact on the stock, and remain concerned about potential H2 16 North American construction equipment production cuts/competitive pricing environment.”

After comparing retail sales changes viewed on a three-year stack basis, Casey concludes, “We expect continued demand deterioration for most markets during 2016 that could be compounded if developed markets fall into recession, and perceive earnings power to have limited upside even though management continues to incrementally reduce its structural cost.”

TipRanks analytics exhibit CAT as a Hold. Based on 8 analysts polled by TipRanks in the last 3 months, 1 rates a Buy, while 7 maintain a Hold on CAT. The consensus price target stands at $76.63, which represents an 8% downside from where the stock is currently trading.

Recommended Article: BMO Capital Reiterates Market Perform on Caterpillar Following Meetings with Management

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