Caterpillar's Stock Falters Due to Falling Oil Prices

Caterpillar was among the worst-performing stocks on the US benchmark on Monday, after JPMorgan analysts downgraded the mining and construction equipment maker for its exposure to oil and gas.

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Caterpillar was among the worst-performing stocks on the US benchmark on Monday, after JPMorgan analysts downgraded the mining and construction equipment maker for its exposure to oil and gas.

Analysts at JPMorgan cut Caterpillar to “underweight” from “neutral” and lowered their price target to $80 from $95.

At a time when the price of Brent crude, the global oil benchmark, has fallen more than 50 per cent since mid-June last year, Ann Duignan, an analyst at JPMorgan, said Caterpillar’s direct exposure to oil and gas through services and products used in exploration and production accounts for about $6.5bn, or 12 per cent, of its total revenues.

The company also has indirect exposure to mining, US construction and emerging markets where growth is expected to be pressured by lower oil prices. North American construction accounts for about 17 per cent of Caterpillar’s revenues, and of that Ms Duignan estimates 5 per cent “may be leverage to oil and gas states”. Canadian Oil Sands, which is also expected to experience a slowdown in demand, represents about 3 per cent of total revenue.

“Overall, Caterpillar’s combined indirect exposure may be as much as 15 per cent of its revenues — implying that upwards of 30 per cent of its total revenue may come under increasing pressure in 2015-16,” said Ms Duignan. The stronger dollar is another factor that could hurt Caterpillar’s competitiveness.

For more information on Caterpillar's stock performance...

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