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Why Deutsche Bank Gave Caterpillar (CAT) a "Buy"

NEW YORK (TheStreet) -- Deutsche Bank initiated heavy machinery manufacturer Caterpillar  (CAT) as a "buy" with a price target of $122 on Thursday.

The investment bank said the Illinois-based company's construction and power systems segments can drive growth. 

In pre-market trading, shares had slipped 0.21% to $96.01.

Must Read: Caterpillar Reports Fourth Quarter

TheStreet Ratings team rates CATERPILLAR INC as a Buy with a ratings score of B+. The team has this to say about their recommendation:

"We rate CATERPILLAR INC (CAT) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, reasonable valuation levels, good cash flow from operations, growth in earnings per share and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Machinery industry. The net income increased by 43.9% when compared to the same quarter one year prior, rising from $697.00 million to $1,003.00 million.
  • Net operating cash flow has increased to $2,580.00 million or 30.36% when compared to the same quarter last year. In addition, CATERPILLAR INC has also modestly surpassed the industry average cash flow growth rate of 22.11%.
  • CATERPILLAR INC has improved earnings per share by 48.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CATERPILLAR INC reported lower earnings of $5.75 versus $8.49 in the prior year. This year, the market expects an improvement in earnings ($5.87 versus $5.75).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 17.4%. Since the same quarter one year prior, revenues fell by 10.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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