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Morgan Stanley dumps on Caterpillar

UPDATE: Associated Press offers more detail on Morgan Stanley’s report on Caterpillar:

Morgan Stanley (nyse: MS – news – people ) analyst Robert Wertheimer dismissed the idea that federal spending will offset the sector’s woes.

“We doubt (federal) stimulus (spending) will have much of an impact on equipment sales, especially in 2009,” he wrote in a note to clients. “Current talk in D.C. still supports around $85 billion in infrastructure (spending), with half contracted within the year, and a likely multi-year spending curve. The resulting math does not mean much in a trillion dollar construction market.

“With a multi-year ‘spend’ on most infrastructure projects, and the prospect for about half the total to be planned by mid year 2009, we think it likely that the total incremental spend will be only $10 billion to $20 billion this year – very little relative to the trillion dollar US construction market,” he added.


The Notable Calls blog quotes a Morgan Stanley note saying the risk/reward for Caterpillar is getting scarier.

Recent comments by the CEO of competitor Hitachi Construction—who has “never before experienced seeing sudden, simultaneous drops in worldwide demand” and is seeing global demand down 25-30%—support their bearish view on the shares. MSCO’s 2010 EPS estimate of $2.57 is 40% below consensus ex-MS. CAT has held that emerging markets revenues would grow in 2009; they’ve argued for a steep fall but allowed for the possibility of upside. Upside now seems very unlikely.

So that’s why Cat’s getting pummeled even worse than the broader indexes today.

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Tom Mangan posted at 7:55 am January 14th, 2009 |

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