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Caterpillar Climbs as Cowen Sees a Megacycle

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By Dhirendra Tripathi

Investing.com – Caterpillar stock (NYSE:CAT) rose 3% on Thursday as a Cowen analyst rated it outperform because of a megacycle being underway in construction and infrastructure development.

The stock was off its 8-month lows after analyst Matt Elkott pegged it to touch $241, which is 24% higher than its current level of nearly $195.

Elkott expects valuations to secular trends associated with what is sometimes described as the fourth industrial revolution, the growing service revenue, and increasing involvement in technology.

The analyst sees a $35 billion revenue opportunity for Caterpillar from autonomous solutions in the next decade. The analyst expects the company to generate 33% of its total revenue from the U.S. infrastructure bill alone.

The analyst said the Street isn’t yet appreciating the fact that an expansion of this magnitude would bring with it the first time in 14 years that Caterpillar achieves growth in all the key metrices of revenue, gross and operating margin, and EPS for three consecutive years.

Revenue is expected to grow 30% and 15% in 2021 and 2022, respectively.

The maker of construction and mining equipment will declare its third-quarter earnings on October 28.

The shares have underperformed the broader indices. At the time of declaring its second-quarter results in July, the company had predicted softer margins in July to September.

The company's adjusted operating profit margin was 14.1% in April to June. That said, compared with the third quarter of last year, this profit margin is seen higher.

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