Caterpillar earnings upside expected by JPMorgan analysts

© Reuters.

By Sam Boughedda 

JPMorgan expects earnings upside and a positive second quarter outlook against negative investor sentiment for Caterpillar (NYSE:CAT) when it reports its first quarter earnings before the open on Thursday, April 27.

JPM analysts maintained a $275 price target and Overweight rating on CAT in a note to clients on Monday, telling investors that while sentiment is "understandably bearish on the bellwether cyclical stock," the firm remains contrarian bulls as it believes tailwinds will likely outweigh headwinds.

"Looking into the 1Q23 print, construction machinery shipment data published by the Census Bureau shows ~LSD% sequential moderation in the US vs. 4Q22 (3M ROC), which compares to consensus modeling consolidated ME&T sales decline of 7% sequentially in 1Q23. PPI data shows construction machinery pricing accelerated sequentially to 12.0% (on average) in 1Q23 from 9.5% in 4Q22," the analysts wrote.

They noted that intra-quarter demand commentary from CAT and peers was largely positive, especially for North American non-residential construction, mining, and O&G end markets.

"We are expecting an earnings upside from CAT this week and a positive outlook for 2Q23 with sequential sales and margin improvement. The KPIs that investors will be closely watching in the 1Q print are sequential change in backlog, volume growth against 3%-5% of expected headwind from lapping dealer inventory restocking last year, retail sales to end users, and price/cost," added the analysts. They also mentioned that Komatsu (OTC:KMTUY)'s recent commentary about further price increases likely this year is a "positive read for CAT."