Caterpillar Stock Gains on Infrastructure Bill. It’s 1 of 4 ‘Fresh Picks.’

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Caterpillar is one of four stocks raised to bullish ‘fresh pick’ status by Baird after the House passed a $1.2 trillion infrastructure bill.

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Caterpillar and other machinery stocks made gains early Monday after the House of Representatives passed a $1.2 trillion infrastructure bill at the end of last week.

Heavy-equipment manufacturer Caterpillar (ticker: CAT) was one of the biggest risers in Monday trading, jumping more than 4% as the bill paved the way for billions of dollars in new funding for infrastructure projects. Farm equipment giant Deere (DE) and global power leader Cummins (CMI) also moved higher. 

President Joe Biden said late Friday he will soon sign the landmark bill, which has already been approved in the Senate. The bill authorizes current spending and commits $550 billion in new federal dollars to improve highways, bridges, and roads, expand broadband internet access, overhaul the electric grid, and other projects.

Baird analyst Mircea Dobre raised Caterpillar and three others to bullish ‘fresh pick’ status, noting that the bill provides funding visibility supporting a multiyear equipment capex cycle. Dobre maintained an outperform rating on Caterpillar with a target price of $290, a 41% upside to Friday’s closing price.

“We view CAT as one of the most underappreciated stocks in our coverage given 2022/2023 earnings potential. Year-to-date the stock [has] underperformed the S&P 500 by 1200 bps despite broad-based demand acceleration and good execution on supply chain and margin despite a challenging operating backdrop,” the Baird analyst said.

Astec Industries (ASTE), which manufactures equipment and components used in road building, Terex Corporation (TEX)—a materials processing machinery manufacturer—and vehicle maker Oshkosh (OSK) were also given ‘fresh pick’ designations.

Cowen analysts, led by Matt Elkott, said that when it comes to machinery and transportation manufacturers, Caterpillar, along with Wabtec (WAB) and Cummins would see the most material revenue benefit from the bill. But he said those revenue opportunities wouldn’t start trickling down until late next year or early 2023.

“However, equipment expenditures in the private sector could experience an earlier uptick as confidence about government spending sees a step-function increase,” Elkott said. As a result, the investment bank’s analysts see Caterpillar’s North American construction equipment revenue climbing 29% this year and 12% in 2023. The analysts lifted 2021 earnings per share estimates from $9.85 to $10.40, maintaining an outperform rating and a target price of $241 on the stock.

For Wabtec, the majority of the revenue opportunity comes from the bill’s $66 billion for passenger and freight rail, $39 billion for public transit, and $11 billion for transportation safety programs, Elkott added. Cowen also has an outperform rating on the stock with a target price of $99, a 5% increase on Friday’s close.

The biggest opportunities for Cummins stem from electric-grid rebuilding and zero-emissions buses, the analysts added, sticking to an outperform rating and $284 price target, implying a 20% upside.

Write to Callum Keown at callum.keown@dowjones.com