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Shares of Caterpillar Inc. rallied Tuesday toward a record high, after UBS analyst Steven Fisher raised his price target by 38%, citing expectations that infrastructure stimulus will be coming soon.
Fisher’s move comes a week before the construction and mining equipment maker reported third-quarter results.
The stock CAT, +1.67% surged 2.1% in afternoon trading, putting it on track to close above the Jan. 22, 2018 record close of $170.89.
Caterpillar’s stock is by far the Dow Jones Industrial Average’s DJIA, +1.05% best performer so far in October, with a month-to-date gain of 14.7%. The next best Dow stock is Traveler Companies Inc.’s TRV, +5.10% with a 8.7% gain. In comparison, the Dow has gained 2.8% this month.
UBS’s Fisher raised his price target on Caterpillar’s stock to $180, which is 5.2% above current levels, from $130. He reiterated the neutral rating he’s had on the stock since March 18, when it upgraded it from sell.
“We think there is a greater likelihood of infrastructure stimulus being implemented now than there has been over the past decade due to current macro and political conditions,” Fisher wrote in a note to clients. “Historical moves suggests [Caterpillar’s stock] should outperform the broader market as infrastructure optimism either translates into actual spending or a presumption of spending.”
Fisher said, however, that he believes the stock’s recent outperformance suggests investors have largely priced in a material increase in U.S. construction machinery demand. While further gains are possible, he said a “lower stock price entry point would better allow for several layers of uncertainty in the outlook,” therefore the neutral rating.
Caterpillar is scheduled to report third-quarter results on Oct. 27, before the market opens. The company is expected to report earnings per share of $1.17 on revenue of $9.71 billion, according the FactSet.
The stock has declined on the day earnings were reported in eight of the past 10 quarters, for an average decline of 4.8%. The two times it gained, was for an average of 0.7%.
The stock has rallied27.1% over the past three months and 15.8% year to date, while the Dow has gained 7.0% the past three months and inched up 0.1% this year.
