Citi Meets With Caterpillar's CFO: Cautious China Outlook And 'Stepped Up' Price Competition

Citi's Timothy Thein reiterated Caterpillar Inc. CAT's Neutral rating and $75.00 price target after meeting with the company's CFO.

After Caterpillar's disappointing 1Q sales estimates, management believe A/M volumes have stabilized, as there were "signs of increased quoting activity for rebuilds over the past few months." Even as the yen was strengthening, Caterpillar's dealer contracts "have noted a stepped-up level of price competition within the last ~6 months," claimed the CFO.

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Cautious China Outlook

Despite "firming" equipment utilization levels, Caterpillar remained cautious on the outlook for China construction markets." This was similar to Komatsu's CEO meeting two weeks ago, where a "downbeat view" for China was noted, "calling for 20–25 percent year-over-year unit drop for FY3/17."

Additionally, rising steel prices have continued to rally, and Caterpillar "sees higher costs posing some risk to '17 estimates" if the rally continues (of which Citi is skeptical).

Due to the mixed outlook, the analyst stated there was "nothing in aggregate to change our estimates," with "modest incremental pluses and minuses."