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Goldman Sachs Upgrades Caterpillar, Joy Global

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Since early March, there have been a number of positive data-points from China. Goldman Sachs’ Jerry Revich revised the view on the Machinery coverage from Cautious to Neutral, saying that the signs of a China recovery now appear to be broadening.

The Machinery group has lost 4.5 percent over the past year, as compared to a 0.7 percent gain in the S&P, which also warrants the revised view, apart from the good news from China. “We are not, however, more positive because Machinery is oversupplied in many regions of the world, with pockets of pricing pressure,” analyst Jerry Revich commented.


Revich upgraded the rating for Caterpillar Inc. CAT from Sell to Neutral, while raising the price target from $62 to $78. Although the China construction recovery is unlikely to prove sustainable, improvements in the commodity supply-demand balance and a weakening US dollar are the positives.

Since January 22, Caterpillar’s shares have gained 28 percent, versus a 35 percent gain in Goldman Sachs’ coverage. The company’s Resource business could generate solid incremental margins in a recovery.

The analyst added that Caterpillar had gained 700 bps of share in China’s excavator market over the past 6 years, by adding to its product range and expanding its service points, making the company the #2 manufacturer year to date.

Joy Global

Revich upgraded the rating for Joy Global Inc. JOY from Sell to Neutral, while raising the price target from $13 to $24. Despite expressing concern over the company’s exposure to high cost mining regions longer-term, the analyst mentioned that there is potential for a capex recovery in the event of continued recovery in China construction.

Revich estimated 70 percent upside to new equipment capex if spot commodity prices remained stable. The EPS estimates for 2017 and 2018 have been raised from -$0.37 to $0.34 and from -$0.50 to $0.38, respectively, mainly to reflect higher new equipment sales forecasts.

Joy Global’s shares have lost 64 percent since January 2, 2014, versus an 11 percent decline in Goldman Sachs’ coverage.

Apr 2016Goldman SachsUpgradesSellNeutral
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