The vote of confidence doesn't mean Stifel sees the bottom for the stock, which is prudent as Caterpillar shares are down 10% in premarket trading to below $90 a share, but the firm does see a business "that has structurally improved its earnings and cash flow profiles."
Stifel pointed to a crisis history that should make the company's earnings profile more resilient, confidence in the underlying business through share buybacks, a commitment to growing its dividend by high-single digits through 2023 and the lowering of the company's earnings outlook in the analyst community as all good signs for the company.
"Caterpillar is a leading manufacturer of construction and mining equipment. Many of Caterpillar’s end markets are now stabilizing or have returned to growth after having been depressed for a number of years. We believe this improving demand, coupled with ongoing cost actions, sets the stage for meaningful earnings growth as markets recover," analyst Stanley Elliott wrote.
Elliott also noted that during previous downturns, Caterpillar has usually found chart support at a forward price to earnings ratio of 20 times. Caterpillar has targeted 3% to 6% operating margin improvement going forward vs. the 2010-2016 time period.
Caterpillar had a strong session Friday along with the rest of the market, rising 8%, but the stock was set to give away those gains and then some Monday.