Is Caterpillar Stock Going to $399? 1 Wall Street Analyst Thinks So

Caterpillar's (NYSE:CAT) recent second-quarter earnings inspired a Truist analyst to raise the company's price target to $399 from $390 while maintaining a buy rating on the stock. The price target implies a 22% upside for the stock. However, as you might expect from a cyclical stock, there's no agreement on Wall Street with BofA lowering its price target to $376, and while Baird raised its price target to a lowly $264, it maintained an underperform rating on the stock.

Why Truist raised the price target

According to thefly.com, the analyst believes the second quarter's margin performance demonstrated Caterpillar's ability to overcome potential weakness in its construction end markets.

The assessment is good because Caterpillar lowered its full-year expectations for overall sales. Jim Umpleby said, "We now anticipate slightly lower construction industries sales to users for the full year 2024 than we did previously" in North America.

On the other hand, management also said its adjusted operating profit margin and operating profit would be more than expected.

The better-than-anticipated performance comes as Caterpillar's price increases continue to offset declines in sales volumes, and its margins and profitability may be becoming structurally higher.

Against that view, management did say that its price realization (the incremental sales it gets from increasing a product's price rather than that coming from a product's volume growth) would be "flattish" in the third quarter due to "improved availability across the industry."

Image source: Getty Images.

A stock to buy

Despite the third-quarter guidance on price realization, it's still been a very strong year for Caterpillar, and its profits are set to improve despite a decline in sales. That's an excellent result for a cyclical company, and if lower interest rates improve its construction end market in 2025, then the stock can move higher.

In addition, the better margin performance might encourage management to upgrade its long-term margin and cash flow expectations, which is likely to drive the stock higher.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.