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Caterpillar to Divest Its Purpose-Built Forestry Business

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Caterpillar’s purpose-built forestry business

On August 29, Caterpillar (CAT) announced that it intends to sell its purpose-built forestry business. Caterpillar entered into a preliminary agreement with Weiler. If everything goes well, the deal is expected to be completed by early 2019. However, Caterpillar didn’t disclose the financial aspects of the deal.

The deal includes a manufacturing plant and warehouse in LaGrange, Georgia, a training center in Auburn, and the Prentice parts distribution center in Smithfield, North Carolina. The product line includes wheel skidders, track feller bunchers, wheel feller bunchers, and knuckleboom loaders.

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Weiler manufactures purpose-built equipment. The company has an extensive portfolio of products. Pat Weiler, the company’s owner and founder, said, “We believe that the purpose-built forestry product line is the ideal addition to our current product portfolio. We have a proven track record of working with Cat dealers all over the world to respond rapidly to customers with specialized product needs. We are confident that our existing product line experience, our flexible design and manufacturing strategy, and our commitment to customers provide a strong foundation to successfully serve the purpose-built forestry segment.”

Caterpillar’s stock price update

Caterpillar’s stock prices gained ~0.5% and closed at $138.85 for the week ending August 31. The decline in the stock price caused Caterpillar stock to trade 4.3% below the 100-day moving average price of $145.04, which indicates that the stock is on a downward trend. The 100-day moving average price has declined from $155.30 to the current levels. However, analysts are bullish on the stock. Analysts have recommended a target price of $166, which implies a return potential of 19.5% over the closing price on August 31.

On a year-to-date basis, Caterpillar has declined 11.9%, which indicates prevailing weakness in the stock. Deere (DE), 3M (MMM), and Stanley Black & Decker (SWK) have declined 8.1%, 10.4%, and 20.1%, respectively. Caterpillar has a 14-day relative strength index of 45, which indicates that the stock isn’t overbought or oversold.

Investors could invest in Caterpillar indirectly through the Industrial Select Sector SPDR Fund (XLI), which has invested 3.5% of its portfolio in Caterpillar as of August 31.

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