Stock Picks: Caterpillar, CSX

Plus Wall Street analyst opinions on Abercombie & Fitch and Electronic Arts

Caterpillar Inc. (CAT)

Morgan Stanley upgrades to overweight from underweight; raises price target

Morgan Stanley analyst Robert Wertheimer raised his investment rating on shares of Caterpillar Inc. on Feb. 9, saying he was positive on the world's largest maker of bulldozers for the first time in three years of covering the stock.

"We are now more bullish than [the Wall Street] consensus on both the pace of cyclical acceleration and on CAT's ability to deliver on its structural transformation and, potentially, $8-10 [per share] in earnings," the analyst wrote in a note. "Upside risk is material in 2-3 years if structural changes work, i.e. [the] shares could double".

The analyst said that Caterpillar's move to streamline parts and materials—which he said were verified in conversations with suppliers--could save the company "hundreds of millions to billions". He said he thinks many investors are still highly skeptical, specifically on the company's goal of $8-$10 earnings per share in 2012.

"We're not completely there yet either, but this feels like an area where too many are underestimating CAT," Wertheimer wrote.

The analyst raised his price target on the shares to $70 from $51.

CSX Corp. (CSX)

Stifel Nicolaus upgrades to buy from hold

Stifel Nicolaus analyst John Larkin raised his rating on CSX Corp. on Feb. 9, saying that the recent pullback in railroad share prices has created an attractive entry point for starting or adding to a position in CSX. Larkin noted that since Jan. 1, shares of the third-largest U.S. railroad have declined 12.3% vs. a 5.2% drop in the S&P 500 index.

The analyst maintained his EPS estimates of $3.10 for 2010, $3.65 for 2011, and $4.10 for 2012. He said he believes that his EPS estimates, as well as Wall Street consensus EPS estimates, may prove to be conservative, citing "the reasonable likelihood" of a gradual economic recovery over the coming three years, continuing pricing strength for carload freight, railroads' ability to offset much of their cost inflation via improved productivity, and the "relatively low" probability of unfavorable industry regulation.

The analyst has a 12-month price target of $51 on the shares.

Business Exchange

Track and share business topics across the Web.