Machinery replacement demand is a major theme in the industrials equipment sector in the U.S. and Canada, partially because contractors and rental companies cut their fleet expenditures dramatically in the downturn, to the point their fleets have become older and smaller than historical average, says Theoni Pilarinos, an Analyst at Raymond James & Associates, Inc.
“So in many cases that means they are insufficient even to meet the current or base level of activity in construction. So we have seen this game of catch-up and rebuilding fleets to even maintenance levels, and on top of that you’re seeing some activity increases, which is helping incremental purchases as well,” she said.
Pilarinos likes Caterpillar Inc. (CAT), which she says estimates that the fall in equipment sales was about 80% from when its sales in the U.S. peaked in 2006 to its bottom in 2009. Since then, she has started to see demand return without a strong rebound in the end markets.
“We have seen 50% growth in Caterpillar dealers’ unit sales to end users, for example, in construction equipment, but we certainly have not seen that kind of rebound in end-market activity,” Pilarinos said.
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