Al Root

Caterpillar stock caught a Wall Street upgrade, but investors aren't getting the nod to buy yet.

Monday, Evercore ISI analyst David Raso upgraded Caterpillar stock to Hold from Sell, and left his price target at $365. Cat stock closed Friday at $351.

A Buy recommendation is more bullish, but any upgrade can bolster a stock. Still, investors are reacting with caution.

Cat stock was down 0.2% in premarket trading at $350.42, while S&P 500 and Dow Jones Industrial Average futures were down 0.6% and 0.1%, respectively.

An issue for Raso, and investors, is interest rates. They are stubbornly high, and high rates make construction projects more expensive, reducing demand for Cat's machinery.

Still, coming into Monday trading, Cat stock was down about 13% over the past three months. Investor expectations are "greatly reduced," wrote the analyst, and demand from dealers was "better than feared" in a regular survey he conducts.

That isn't enough for investors right now. A separate call from Citi analyst Kyle Menges didn't help either. He is a Cat bull, rating shares at Buy. Still, on Monday, he cut his price target to $420 from $460.

Near-term fundamentals for machinery makers look "weak," wrote Menges. "We anticipate companies will approach 2025 guides with a healthy degree of conservatism given a generally weak [outlook] and ongoing uncertainty surrounding Fed and Trump admin policies."

One reason Menges doesn't just downgrade Cat stock: He doesn't see a lot of downside. His bear-case price target is $$340, down about 9% from recent levels. His bull-case price target is $450, up almost 30%.

That's a good risk/reward ratio, but analysts, seem to be waiting for something like lower rates to jump-start shares. Overall, 41% of analysts covering Cat shares have Buy ratings, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Cat stock is about $387.

Write to Al Root at allen.root@dowjones.com

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January 13, 2025 08:51 ET (13:51 GMT)

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