CAT - Caterpillar United Rentals downgraded to Underperform at Baird

2023-03-27 08:42:21 ET

Caterpillar ( NYSE: CAT ) and United Rentals ( NYSE: URI ) on Monday were downgraded to Underperform from an prior investment rating of Neutral by analysts at Baird. They said the companies this year likely will face a “meaningful slowdown” in building activity amid concerns about the health of regional banks after Silicon Valley Bank ( SIVB ) and Signature Bank ( SBNY ) 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 ( CAT ) 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 ( CAT ) 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.

United Rentals ( URI ) faces slower demand for its fleet of construction equipment, which the company has expanded in the past few years. Baird lowered its price target on United Rentals ( URI ) to $300 a share from $425 a share, based on a multiple of price-to-earnings multiple of 7.5 times estimated EPS for 2023.

“We believe demand will slow even as reshoring ‘mega projects’ move into the execution phase which should lead to a capex recalibration into 2024 – this should pressure OEM order intakes and production schedules,” according to Baird.

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