Caterpillar Dealer Trends Can Help It Keep Leading the DJIA

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Caterpillar Inc. (NYSE: CAT) has been a massive surprise so far in 2014. Things looked very bad at the start of 2014, and this DJIA stock was among the biggest losers in 2013. But that was then. Now it turns out that the industrial equipment giant may be poised to keep leading the DJIA higher – at least once the selling dust settles.

What is amazing is just how much Caterpillar has exceeded every real target out there this year. Caterpillar’s gains have been largely without the major upside driven by emerging markets and mining. A report from Credit Suisse is highlighting new positive data on Tuesday.

At the start of January, the gain for Caterpillar was expected to be a slight loss. We ran a bull and bear case at the start of 2014, and the consensus analyst price target was only $90.59 at the time.

So, back to Credit Suisse… The firm’s Jack Cook sees green shoots continuing to unfold in the United States market for Caterpillar. For 2014, 95% of the dealers the firm surveyed are exceeding their forecasts. Now the year is expected to be up 8% to 12% rather than a prior estimate of 5% to 7%. Some basic commentary was as follows:

  • positive housing commentary was fairly broad-based;
  • non-residential is mixed but better on the margin;
  • dealers noted some signs of life in multi-family housing, automotive, hospitals, schools and data centers;
  • dealers noted government spending has bottomed and energy in most cases remains solid (but mining is still dead);
  • dealer inventory levels are very low, and dealers are already concerned about lead times;
  • used equipment remains hard to come by, and rental is strong;
  • and pricing remains competitive.

Credit Suisse’s Jack Cook has a $117 price target on Caterpillar and an Outperform rating. The highest price target from all analysts tracked by Thomson Reuters is $125 on Caterpillar shares.

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What is interesting here is that Credit Suisse also said that its overseas markets remain challenged. This notes difficulties in Indonesia, China, UAE, Canada, and elsewhere. Still, dealers noted strong export markets to Africa (in particular Ghana and Zambia).

Caterpillar shares were down with the broad market on Tuesday. The stock was down less than 1% at $107.75 with only about 30 minutes to go before the closing bell. The consensus analyst price target is up at almost $112 and the 52-week range is $80.86 to $109.85.