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Caterpillar Inc. (CAT) Announces Job Cuts Amid Revenue Drop: Analysts Concerned

By Howard Kim 

On September 24th, Caterpillar Inc. (NYSE:CAT) announced that it was projecting 10,000 job cuts. The company also noted that 2015 will be the third year in a row of declining revenues. Sales are expected to decline in 2016 to nearly $48 billion. In the company’s 90-year old history, this will be the first time the company sees four consecutive years of dropping sales. In light of these announcements, three leading analysts following the company weighed in.

Following the announcement, Robert Connors from Stifel Nicolaus expects the restructuring activity to result in strong bottom-line growth. He said while EPS is expected to drop in FY16, thereon healthy growth is expected as the company winds down its exposure to commodities. According to Connors, the company increased its commodity exposure in recent years, with these businesses driving nearly 42% of the company’s revenues. With this restructuring, the exposure to the commodities business is expected to drop to 30% and the focus on the construction-related business should increase. Connors reiterated a Buy rating on the company but reduced his price target to $86, from $92.

On September 25th, Lawrence De Maria of William Blair downgraded Caterpillar to Market Perform from his earlier Outperform rating. Also, he’s cut the price target for the stock to $60 from his earlier target of $90. As per De Maria, the stock has “too many headwinds to ignore.” Some of these headwinds include North America locomotives, investments in oil, gas and other commodities, and weaknesses in emerging markets like China and Brazil. De Maria noted that there has been a weakness in the United States, which has traditionally been a “source of strength.”

On September 25th, Sameer Rathod from Macquarie maintained an Underperform rating for the stock; also, he reduced his price target for the stock to $58 from $60. As per Rathod, some of the reasons behind the Underperform rating were the weakening outlook of global growth, weaker dealer stats, and continuing commentary about price competition.

According to Rathod, the Caterpillar reduced its 2015 revenue guidance and has also indicated a decline of another 5 percent in 2016 revenues. He added, “We think CAT is taking the right steps to prepare for the coming downturn and would be encouraged to see management forgo any additional compensation given the number of job cuts they will have to execute over the coming quarters.”

Of all the 9 analysts who have rated Caterpillar’s stock in the last 3 months, 4 have given a Hold rating, 3 have given a Sell, and only 2 have given a Buy rating. The consensus price target for the stock is $69, a 6.19% upside from current levels.