Gordon Johnson On Caterpillar: 'Probably One Of The Most Overvalued Stocks We've Ever Seen'

Despite Caterpillar Inc. CAT's first-quarter earnings beat last week, Axiom Capital Managing Director Gordon Johnson isn't impressed.

“Caterpillar is probably one of the most overvalued stocks we’ve ever seen,” Johnson said Thursday on Benzinga’s PreMarket Prep show.

Johnson attributed the beat to the timing of variable and period cost recognition and stock-based comp recognition rather than any economic factors, which he said doesn't bode well for the company in the future.

With key markets slowing and fundamental risk, Johnson pointed to a fair value of $98 — and that’s based on the firm’s peak earnings, which were stimulated by one-time oil pipeline contracts and an unusually strong China stimulus, conditions he doesn’t expect to be replicated.

“We would argue their earnings are never going to reach that level again,” Johnson said. In other words, that $98 represents the absolute best-case scenario in the company’s history.

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Johnson speculated Caterpillar framed the quarter as a beat to positively spin factors that will soon be used against it, as the U.S. Securities and Exchange Commission continues its investigation for accounting fraud.

“I think why they did all this, is because they wanted to put up good numbers ahead of this accounting fraud investigation,” Johnson said. “They wanted to show the SEC that they could put up good numbers despite not cheating...The government thinks Caterpillar is completely untrustworthy.

“We think it’s massively overvalued, and we think people are going to realize that as they realize the stimulus Trump is promising isn’t coming and the earnings continue to disappoint.”

You can listen to Johnson's full commentary on Caterpillar on Thursday's PreMarket Prep here.

Caterpillar's stock was trading down more than 1.2 percent at $100.29 Thursday morning.