Caterpillar Slips on Downgrade

Caterpillar (NYSE:CAT) dropped first thing Monday after Baird downgraded the machinery company to underperform, citing potential headwinds driven by a “meaningful slowdown” in new small- and medium-sized nonresidential projects in 2024 due to ongoing turmoil with regional bank lenders.

They said the company this year likely will face a “meaningful slowdown” in building activity amid concerns about the health of regional banks after Silicon Valley Bank and Signature Bank collapsed.

“With nearly 70% of commercial real estate loans held by regional/small lenders, ongoing pressure on regional lenders should lead to much tighter credit conditions impacting the flow of new small/medium-sized nonresidential projects,” Mircea Dobre, analyst at Baird, said in a March 27 report.

Caterpillar likely is experiencing a peak in its backlog for heavy machinery and construction equipment during the current quarter, according to Baird. It lowered its price target on Caterpillar to $185 a share from $230 a share, based on a price-to-earnings multiple of 11 times Baird’s estimate of EPS for this year.

Only a few weeks back, the company reported its workers represented by the United Auto Workers vote to ratify a new six-year contract with the maker of heavy machinery and construction equipment. The agreement prevents a strike at several Caterpillar factories and facilities.

The contract provides for a 27% combined wage increase and lump sums, a $6,000 bonus and increased employer contributions to retirement plans for about 7,000 workers. It also has a moratorium on factory closures.

CAT began trading Monday down $1.14 to $215.87.