Caterpillar stock outlook: Jefferies sees another 20% upside

on Mar 8, 2022
  • Stephen Volkmann upgraded Caterpillar to "buy" with a PT of $260 a share.
  • Jefferies' analyst says CAT is a strong hedge against higher commodity prices.
  • Analysts warn oil could hit $200 a barrel as the U.S. banned Russian oil and gas.

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Caterpillar Inc (NYSE: CAT) stock is up nearly 10% today after Jefferies said it’s a “strong hedge” against higher commodity prices related to the ongoing war in Ukraine.

Analyst pegs a $260 PT on Caterpillar stock

In a note to clients this morning, analyst Stephen Volkmann upgraded the stock to “buy” with a price target of $260 a share that represents another 20% upside on top of the price action on Tuesday. Volkmann wrote:

We believe the Russia/Ukraine crisis has fundamentally altered global commodity markets and is likely to drive a decade of reinvestment, similar to what the world experienced in the 1970s, setting the stage for long-term outperformance by commodity related machinery names like CAT.

The U.S. banned all imports of Russian oil and gas on Tuesday that analysts warn could send oil prices as high as $200 a barrel.

Caterpillar stock is a long-term play

Volkmann reiterated that Caterpillar was a long-term play as he pegged its earnings power at $25 a share for the next several years. He added:

CAT’s relative multiple to expand, similar to what we saw in the 1970s when CAT averaged more than 120% of the market multiple versus 80% currently.

Volkmann quoted historical evidence to make a case that Caterpillar thrives in times of inflation. Jefferies’ upgrade comes more than a month after Caterpillar reported market-beating results for its fiscal Q4.