Goldman Sachs thinks a new 'commodity deflation cycle' is just beginning and Caterpillar is going to get crushed

There is a worldwide industrial slowdown right now and fewer companies have taken more of a beating than Caterpillar.

And on Monday, Goldman Sachs analysts downgraded the industrial behemoth as the company continues to bear the brunt of the slowdown.

In a note, they bumped down their rating to "Sell" from "Neutral" with a $51 price target, indicating that they expect the stock to tank 61% this year.

And this downgrade is all about the bust in commodity prices.

Here's Goldman:

"We downgrade CAT to Sell from Neutral with a 12-month price target of $51 (13% downside). We see 35% downside to consensus 2017 EPS driven by our view of structurally lower global infrastructure investment in the early stages of an extended commodity deflation cycle. We see 35% downside to consensus 2017 earnings per share driven by our view of structurally lower global infrastructure investment in the early stages of an extended commodity deflation cycle ... We see a sustained right-sizing of commodity capex allocation in this cycle due to challenging producer returns and balance sheets - factors that we expect to drive lower cycle over cycle machinery demand and utilization."

The crux of Goldman's downgrade is that the plunge in commodity prices is bad news for machinery companies. But Caterpillar is especially in harm's way because several of the mining, agriculture, and other companies that buy from it, whose budgets are shrinking.

Goldman says that unless the imbalance between commodity supply and demand evens out, the dollar's appreciation slows down, and Caterpillar adds to its $1.5 billion restructuring program, they will remain bearish.

Caterpillar shares were down as much as 3% pre-market and the stock has fallen nearly 30% over the past 12 months.

Goldman added:

"Given the significant supply build-out in the current cycle, our in-house view remains for an extended multi-year commodity deflation cycle that could be similar to that of the 1980's [and] early 1990's, which we believe will drive a challenging backdrop for CAT earnings growth and relative performance."

Caterpillar's global machinery sales have declined for several months since mid-2012.

Here's the brutal chart of Caterpillar's stock performance during the last commodity deflation cycle, which Goldman thinks is playing out again.