Tariff Concerns Downgrade Heavy Equipment Stocks

Investors are weighing the impact of tariffs on heavy equipment stocks, particularly Caterpillar and Deere, which have seen recent downgrades. Consequently, investors need to approach these stocks with caution as earnings expectations may be affected.

Date: 07-04-2025

AI Rating: 4

The recent report highlights significant concerns regarding the heavy equipment manufacturing industry, particularly for companies like Caterpillar (NYSE: CAT), Deere (NYSE: DE), and Toro (NYSE: TTC). Analysts have downgraded these stocks due to worries that tariffs could negatively influence both the supply of necessary raw materials and the demand for their products.

Earnings Per Share (EPS) for both Caterpillar and Deere may come under pressure as the impact of tariffs results in increased costs and potential decreases in sales. With Caterpillar being downgraded from neutral to sell and a significant price target reduction from $385 to $243, it's clear investors should brace for potential declining EPS.

Revenue Growth is also at risk, particularly as the macroeconomic outlook suggests that uncertainty surrounding trade policy could negatively affect demand. For heavy equipment manufacturers, high-priced finished goods generally perform best in a strong economic climate. If tariffs diminish overall economic activity, revenue growth will likely falter.

Net Income could see declines as well, following reduced revenue growth and potential increases in production costs due to tariffs on steel and other materials. Companies that fail to manage these cost pressures could see their profitability compromised.

Profit Margins are likely to shrink if raw material costs rise while product prices cannot increase proportionately due to weakened demand. Both gross and operating margins will be crucial to monitor as the situation develops.

All this points to a challenging operating environment for these heavy equipment firms. The uncertainty surrounding tariffs suggests there will be little reason for investors to get excited about purchasing these stocks in the short term, resulting in a cautious stance for those holding them.

Stocks: CAT DE TTC