Caterpillar Inc. (NYSE: CAT) was down 0.5% at $139.09 on Tuesday and was trading down even worse on Wednesday as earnings season kicks into full swing.

Credit Suisse maintained its Outperform rating on the shares, but its target on the equipment giant was lowered to $164 from $172, after evaluating the dealer survey results from the prior months.

According to Credit Suisse, 75% of dealers reiterated their prior forecasts calling for demand to be in a range of flat to up about 5%. The firm also noted that 25% of dealers cited modest risks to their full-year estimates.

The firm’s view is that Caterpillar’s demand is holding up, but there is also clearly less optimism on opportunities for upside to their forecasts from the first quarter while there is some downside risk. As for earnings in the second quarter, Credit Suisse’s Jamie Cook believes the risk is less around earnings per share in the second quarter versus the risks in the second half of 2019 as the improvement that was expected in mining and oil and gas orders likely will not materialize.

Credit Suisse also gave more specific regional and sector trends, as well as the used equipment market. Cook’s report said:

For the North American markets, demand is healthy across commercial construction, infrastructure and pipeline, whereas energy and mining were more mixed. Lead times for small and medium sized equipment have improved, although lead times are still extended on large equipment and engines. Parts availability appears to be less of an issue. Rental rates and utilization are okay. Used pricing remains fairly stable. Dealer inventory overall remains healthy however some dealers with slightly too much inventory are shipping equipment to dealers where demand is still stronger. Overseas, the European demand forecast is reiterated at flat to down 5%. Demand in China remains more challenged relative to last quarter and the pricing environment is competitive. Indonesia was also weaker versus last quarter tied to mining. With regards to 2020, while it is early to provide an outlook, most expect flat to down 5% but reiterated overall demand is at healthy levels. There are no signs of markets overheating broadly.

As far as what to look for when Caterpillar reports, the report said:

We believe investors need confidence Caterpillar will proactively pull levers in the event of a mid-cycle slow down and that Caterpillar can effectively manage EPS and channel inventory.

Wednesday’s pre-earnings report comes with lowered expectations along with broader trade war concerns. Fiscal year earnings were cut as follows, with consensus estimates for the first two years from Refinitiv:

• 2019 EPS to $12.05 (versus $12.25 EPS consensus)
• 2020 EPS to $12.90 (versus $12.86 EPS consensus)
• And 2021 EPS to $13.75

All in all, Caterpillar’s trend looks weaker ahead of earnings. That said, Credit Suisse remains mixed to marginally more positive versus other analysts on Wall Street ahead of its earnings report.

Caterpillar shares were trading down 1.7% at $136.74 late Wednesday morning. Its consensus price target was $147.48, and the 52-week trading range is $112.06 to $159.37. The official street-high price target is still listed as $200, but that is an old call from the start of 2018 and it may not have been updated since.

Caterpillar’s 9% total return so far in 2019 is not quite half of the return from the S&P 500.

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