Tax Talk Tempers Boost from Caterpillar’s Predicted BuyBack

Caterpillar’s, $CAT, stock jumped today after analysts argued that the company could repurchase 35 million shares in the next few years.

Barclays’s analysts wrote in a note yesterday that the global construction equipment company could generate enough free cash flow to buyback 35 million shares in three years, adding up to $1.20 of EPS by 2016. Barclays’s analysts also boosted their price target to $112 from $107, according to the Analyst Ratings Network.

Caterpillar's PT raised by Barclays to $112.00. $CAT

— Analyst Ratings Network (@AnalystRatingsNetwork) Apr. 1 at 01:09 PM

The stock rose more than 2% today after climbing yesterday. Sentiment on the stock is 76% bullish, according to StockTwits’ analytics.

$CAT is getting closer to intrinsic value @ $116. Some room left, but not much

— Eugene Art (@StoxValue) Apr. 2 at 02:32 PM

Some cashtaggers said that the climb was overdone. It wasn’t as though the company announced a new revenue source, they argued. And Caterpillar could decide it wants to do something else with its free cash besides repurchase shares.

$CAT buybacks, not fundamental changes,

— Jimi Zen (@JimiZen) Apr. 2 at 01:41 PM

Caterpillar management’s testimony before congress this week tempered today’s enthusiasm for a projected buyback. Caterpillar executives told a senate panel that the company pays its fair share of taxes, even if much of Caterpillar’s profits go through a Swiss subsidiary with a much smaller negotiated tax rate than the prevailing U.S. corporate tax rate. The Senate committee responded by blasting the company for setting up a tax shelter.

$GM $CAT both down a bit #premarket even though broader market likely to open higher. Congressional hearings not good for shareholder value.

— Paul La Monica (@lamonicabuzz) Apr. 1 at 08:23 AM

Taxes are a major issue for U.S. corporations. The United States will charge about 40% this year, according to data compiled by audit and tax advisory firm KPMG. Switzerland, for comparison’s sake, has a tax rate of just under 18%. Places such as Ireland, Cyprus, Gibraltar, Lithuania, Latvia, Jordan and Kuwait have a rate under 15%.


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