Two Wall Street Analysts Have Mixed Views on Caterpillar Stock. Who's right?

Caterpillar (name) (NYSE: CAT)Caterpillar is a cyclical stock, which means that its revenues, margins, profits, and cash flows tend to fluctuate with the ups and downs of the economy. Caterpillar's earnings can exceed expectations when the economy is in growth mode and fall short of expectations when the economy slows down.

Recently, two heavyweight analysts have expressed opposing views on the stock.Morgan StanleyAnalysts at J.P. Morgan (NYSE: JPM) have set a target price of $327 and assigned an equal weight rating to the stock.J.PThe stock has been given a Hold rating by analysts at Morgan. . analysts at Morgan have set a $435 price target on the stock, giving it a Hold rating. Morgan Stanley's 12-month target suggests the stock will fall 9% from its current price of around $360, while JPMorgan's target points to 21% upside.

Caterpillar Bulls and Bears

Reasons to buy Caterpillar are that lower interest rates are spurring construction activity, its equipment continues to benefit from infrastructure spending, and higher commodity prices are driving sales of mining machinery and energy equipment. If you are optimistic about these indicators, buy the stock.

A bear market is the opposite of that, or at least it doesn't think those factors are enough to drive prices up.

A Third Perspective on Caterpillar

Another way to look at it is that the end of the day market micro-factors can improve Caterpillar's earnings (lower interest rates, increased infrastructure spending, higher commodity prices). Complicating the issue is the fact that it is better to set prices in the market.(negative prefix) Buy cyclical stocks on optimism.

Caterpillar's fair value is approximately 20 times the midpoint of its full-cycle free cash flow (FCF). Management's updated guidance is $5.0 billion to $10.0 billion, compared to previous guidance of $4.0 billion to $8.0 billion.

The midpoint of the new guidance is $7.5 billion, which implies a valuation of $150 billion, compared to the current market capitalization of $181 billion and a share price of $360. While Caterpillar is likely to beat earnings estimates this year, and the stock has good momentum, the current entry point is not an excellent value for long-term investors who recognize the cyclical nature of earnings.

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Two Wall Street Analysts Have Mixed Views on Caterpillar Stock. Who's Right? This post was originally published by The Motley Fool.