The Deerfield, Ill.-based company should see demand growth continue in 2019, Baird analysts, including Mircea Dobre, wrote in a research note.
"While some end markets (China, US light construction equipment) are closer to peak, most of CAT's demand is still at or below mid-cycle levels (we estimate more than 60% of sales at mid-cycle or below)," Dobre said. "Capital deployment remains a catalyst (potential greater than $6 billion), 2019 multiple rerating closer to a mid-cycle level should drive shares above $190."
Baird raised its price target on the stock from $155 to $191.
Shares of Caterpillar rose 2.4% to $156.35 at 9:45 a.m New York time. The stock is down 3% year-to-date as the industrial company often comes under pressure as trade tensions escalate.
The U.S. and China have been implementing tit-for-tat tariffs on each country's products. Most recently, the Chinese government announced that it would impose tariffs on $60 billion in U.S. exports after the Trump administration said it was readying tariffs on $200 billion worth of Chinese goods.
"'Trade wars' and related uncertainty along with 'peak growth' have been factors behind the multiple derating now look increasingly priced in; as multiples bottom we expect fundamentals will once again drive stock action: the near-term picture is still robust as demand remains solid, pricing is coming through to support second half of 2019 margins with raw materials plateauing," the Baird analysts said.
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