BofA Upgrades Caterpillar, Herc Holdings On Improving Construction Signals

A proprietary survey of 71 construction equipment dealers from around the world indicates better trends than feared, which is consistent with the recent improvement in economic data, according to BofA Securities.

The Construction Equipment Upgrades: BofA’s Ross Gilardi upgraded  industry bellwether Caterpillar Inc. CAT from Underperform to Neutral and raised the price target from $95 to $135.

The analyst also upgraded the rating for small cap equipment rental company Herc Holdings Inc HRI from Neutral to Buy and raised the price target from $24 to $38.

The Construction Equipment Thesis: Although concerns persist around the path of economic recovery, most of the major economic releases have recently been positive, Gilardi said in the Wednesday upgrade note. (See his track record here.)

Early indications on earnings, like the recent results from FedEx Corporation FDX, and the prices of metals like copper and iron ore, have surprised to the upside, the analyst said.

The BofA construction equipment dealer survey conducted in June suggests “steady long term sentiment, an improvement in order patterns, somewhat balanced inventory levels, and a softening in pricing,” he said. 

Construction equipment orders have risen from April’s trough, and most dealers did not have elevated inventory levels, Gilardi said. 

The upgrades follow the severe underperformance of Caterpillar and Herc Holdings stocks year-to-date versus industry leader United Rentals, Inc. URI, the analyst said. 

CAT, HRI Price Action: Caterpillar stock was up 0.24% at $127.50 at the time of publication Wednesday, while Herc Holdings was up 0.31% at $29.05. 

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