Despite investors growing increasingly concerned over how the construction industry will fare in an economic slowdown, Bank of America is increasingly optimistic about Caterpillar . Analyst Michael Feniger upgraded the stock to buy from neutral. His price target of $295 implies an upside of 15.7% over where the stock closed Thursday. “While CAT is vulnerable to a slowdown, several unique dynamics from a macro and business cycle perspective can underpin significantly higher ‘trough’ earnings vs expectations,” Feniger said in a note to clients. “We believe there is an underappreciated roadmap that could bring the CAT story to the forefront and drive outperformance.” The stock should feel near-term shielding from broader macro uncertainties in the fourth quarter of 2022 and the first quarter of 2023 given tailwinds from price increases, Feniger said. He called a third-quarter price increase of 14%, which was the highest in a decade, an “inflection point.” Still, the company’s backlog will likely shrink given the impact of recessionary concerns on demand. But he said lead indicators are likely to improve in the second half of the year and indicate a scenario where a recession can be avoided. Headwinds unique to the company are also improving. He noted the company’s focus on electric and autonomous vehicles as one improvement that will help the company long term. Feniger said investors will look back at the company’s per-share earnings in 2023 and be positively surprised as China’s reopening, commodity capital expenditure increases and a shift to bigger construction projects will help offset losses due to the deteriorating economic backdrop. He said full-year growth prospects are positive. — CNBC’s Michael Bloom contributed to this report.
