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UBS downgrades Caterpillar, sees little upside after strong earnings

UBS sees little upside in Caterpillar after its strong earnings results last week. Analyst Steven Fisher downgraded shares of Caterpillar to neutral from buy, saying that the stock will struggle to outperform after its recent gains. The industrial stock is up more than 6% this year, easily surpassing the broader market. “We downgrade CAT to reflect more balanced risk/reward. Our thesis on positive margin inflection is playing out (link), and we continue to see a positive trajectory for margins and earnings growth from here,” Fisher wrote in a Monday note. “However, with multiples compressing as interest rates rise, the valuation at this time presents a more balanced risk-reward dynamic in our view,” Fisher added. The analyst expects that Caterpillar will contend with weakening demand for residential construction, as well as challenges in Europe, though he says the company will continue to grow sales and margins next year. “We expect sales and margins to grow through 2024, and we are ~4% ahead of 2024 consensus EPS, but the recent move in the stock has narrowed the upside. We expect continued solid results to support the stock as it moves towards our target,” Fisher wrote. The analyst raised his 12-month price target to $230 from $225. The new price target implies roughly 4.9% upside from Friday’s closing price of $219.34. The stock is down 1.5% in Monday premarket trading. –CNBC’s Michael Bloom contributed to this report.

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