Fresh off of posting stronger-than-expected third-quarter earnings, Caterpillar was upgraded Friday to buy from neutral by a UBS analyst, who raised his share price target to $235 from $232.
Shares of the Deerfield, Ill., construction equipment maker at last check were up nearly 1% to $205.58.
Analyst Steven Fisher said in a research note that that sentiment on the shares will improve as margins inflect and surprise to the upside during this upcycle, according to the Fly.
All three of Caterpillar's segments will grow over the next two to three years, Fisher said.
Falling input costs and the removal of headwinds will create a "strong margin tailwind" for the company during the upcycle, leading to outsized margin performance,
The analyst said he thinks "the coming inflection" is not being appropriately recognized by investors.
On Thursday, Caterpillar beat Wall Street's earning expectations thanks to a rebound in construction equipment demand, as well as surging commodity prices.
Construction sales were up 30% to $5.26 billion, Caterpillar said, noting "higher end-user demand and the impact from changes in dealer inventories."
Credit Suisse analyst Jamie Cook raised her price target on Caterpillar $1 to $240 while reiterating her outperform rating.
"Bottom line, CAT is executing better than the market expects and relative to peers and has above average growth prospects heading into 2022," Cook said.
Baird analyst Mircea Dobre, who kept his outperform rating and $270 price target on Caterpillar, said the quarter was better than feared as price cost was largely balanced and supply chain disruptions were managed well.
Dobre added that he sees multiple catalysts for Caterpillar going forward, including increased U.S. infrastructure investment, the company's growth decoupling from China and become more reliant on decarbonization, and a dealer channel "running very lean" based on end-user demand and accelerating pricing.