Can Cat Operate at Half Its Size? One Wall Street Analyst Says Yes.

March 31, 2015

Wall Street analyst Andy Kaplowitz of Barclays Capital thinks Caterpillar isn’t doing enough to compensate for diving sales, based on his analysis that the heavy-equipment manufacturer has twice as much capacity as it needs. 

Crain’s Chicago Business magazine further reports on Kaplowitz’s analysis, including his critique on Caterpillar’s $1 billion cost-cutting campaign as only “scratching the surface.” The company’s share price has dropped 26 percent over the past three years, while Standard & Poor’s index of industrial stocks rose 46 percent.

Kaplowitz adds that Caterpillar is facing pressure from investors to greatly reduce costs. According to company filings, Cat’s headcount is down approximately 11,000 over the past two years and the company shut down seven plants, which make large trucks and other equipment for the mining industry.

Cat’s 2015 expense reduction plans did not include further large-scale plant closings and focuses on maintaining market share in a cyclical industry.

But some analysts and investors believe more cost-cutting measures should be taken, given the uncertain future of the mining industry. Investor confidence took a hit when CEO Doug Oberhelman significantly increased Cat’s involvement in the mining industry right before the market crash.

Source: Crain's Chicago Business