Wells Fargo Upgrades Caterpillar On Upside In Key Markets

Caterpillar Inc’s CAT earnings are expected to improve substantially in 2021 and beyond, according to Wells Fargo.

The Caterpillar Analyst: Andrew Casey upgraded Caterpillar from Equal Weight to Overweight and raised the price target from $160 to $220.

The Caterpillar Thesis: While global growth seems poised to accelerate, key markets appear to be bottoming, with upside ahead in 2021, Casey said in a Friday upgrade note. 

The analyst expects global growth to accelerate in 2021, suggested by the recent increases in OECD leading indicators and commodity prices.

“Historical response to acceleration in leading indicators, commodity prices, and other factors suggest CAT’s P/E should inflate to at least 30x next 12-month earnings.”

Market trends could begin improving during the first half of 2021, Casey said.

“Combining this with absence of both COVID-19 economy shutdowns and 2020 inventory reduction initiatives, we expect CAT’s revenue growth from these end markets to begin mid- to late-H1 21,” the analyst said. 

Higher revenue generation will support margin expansion with an improved cost structure, and the company could allocate the potentially higher cash flow to enhance growth, according to Wells Fargo. 

CAT Price Action: Shares of Caterpillar were up 2.97% at $169.94 at last check Friday.