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Caterpillar Drops Despite 2Q Earnings Beat

Shares of Caterpillar (CAT) fell almost 2.8% on Friday despite beating 2Q earnings estimates. Its 2Q adjusted earnings of $1.03 per share exceeded analysts’ estimates of $0.64. Moreover, revenues of $10 billion surpassed Street estimates of $9.38 billion. However, the company’s outlook for dealer inventories weighed on its stock.

During the second quarter, dealers reduced inventories for new equipment by $1.4 billion. The company now anticipates dealer inventories to decline by over $2 billion in 2020, up from its previous estimate of $1.5 billion.

Following 2Q earnings, Oppenheimer analyst Noah Kaye reiterated his Hold rating on the stock. He said, “While decrementals of 32% were consistent with our cross-cycle analysis, sales in construction, mining, and E&T broadly showed resilience.”

On July 24, Stifel Nicolaus analyst Stanley Elliott lifted the price target to $150 (12.9% upside potential) from $135 and reaffirmed a Buy rating. Elliott highlighted several “recent data points that suggest some upside relative to expectations for the machinery business.” He argued, “The results of component supplier Carlisle Brake & Friction, as well as Volvo Construction Equipment trends that were better than feared, suggest potential upside to Q2 and Q3 sell-side expectations, particularly in Caterpillar’s machinery segments.”

Overall, CAT analysts have a cautiously optimistic Moderate Buy consensus on the stock. The average analyst price target stands at $139.89, implying 5.3% upside potential from current levels. (See CAT stock analysis on TipRanks).

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Amit Singh
Amit Singh jumped into the world of stock analysis and investing after completing his Post Graduate Diploma in Finance in 2009. Before joining TipRanks in 2020, he worked as an equity research analyst for eight years. With a keen eye for identifying strategic investment opportunities, his work entails evaluating stocks, building financial models, writing company-specific research reports, and identifying the overall financial worth of companies in the consumer staples and technology sectors. In 2017, Amit found a way to combine his expertise in evaluating companies with his passion for writing. He has also worked with the financial research firm Market Realist.

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