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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.
Seeking Alpha contributor Luca Socci has a Buy rating on Caterpillar (CAT) because of the company’s services business. Columnist Vladimir Dimitrov rates United Rentals (URI) a Buy rating on the company’s competitive advantage.