Caterpillar Inc. (NASDAQ:CAT) shares dropped more than 5% on Thursday morning but recovered at the end of the day. This was followed by the company’s reported Q1 results. While both EPS and revenues of $2.88 and $13.59 billion came above the consensus estimates of $2.61 and $13.43 billion, respectively, the market reacted on the weakness in demand from China.

Analysts at Oppenheimer believe the market reaction reflects the partial unwinding of the commodity inflation trade that had benefited the shares into earnings, with the Q2 margin guide renewing concerns over cost inflation and China softness/decelerating machine sales growth raising questions around the durability of the recovery.

The analysts view the latter concern as potentially overdone as Q1’s robust backlog suggests an elongating recovery in E&T and mining, while Infrastructure Act spend should provide a multiyear lift to NorAM CI.

The analysts expect 2022 revenue of $57.4 billion and adjusted EPS of $12.69. For the full 2023-year, the company expects revenue and adjusted EPS of $62.3 billion and $14.58 (vs. $62.5 billion, $14.19 prior). The analysts view the May Investor Day to be potentially a catalyst for an improving secular narrative and maintained their perform rating.