"We are projecting a megacycle of financial performance for Caterpillar in the next three years starting in 2021. Growth in revenue, gross margin, operating margin and EPS. It's fairly consistent with the consensus, but I think what is somewhere overlooked here is this will be the first time in 14 years that Caterpillar has grown in all these metrics for three consecutive years. The last time this happened was 14 years go, and the stock had one of its most sustained, positive price action," said Elkott on Yahoo Finance Live.
Elkott slapped Caterpillar with an Out-perform rating on Thursday with a $241 price target.
Caterpillar shares popped 3% to $194.18 on the call. To be sure, Caterpillar's stock is in no way reflecting a new financial "megacycle."
Shares are up a mere 6.7% year-to-date, lagging the S&P 500's 17% gain as investors fret about inflationary impacts on industrial companies and slowing growth in China's once red-hot property market. At a forward price-to-earnings multiple of 15.8 times, Caterpillar's stock trades at a discount to the S&P 500's forward multiple of roughly 21 times.
But Elkott is going all in on Caterpillar, pointing to several key drivers of a higher valuation for the maker of giant dump trucks.
Elkott is bullish on Caterpillar's new technologies designed to lower emissions, autonomous products, ongoing strength in the U.S. construction market and an eventual infrastructure bill. The company also has an opportunity over time in electrifying its fleet of products.
The spike in energy prices recently may further play into a bull thesis on Caterpillar's stock.
"Commodity prices do raise their input costs, but on balance higher commodity prices are good for Caterpillar because their customers do well. That more than offset the higher input costs. Definitely that is a part of our thesis," Elkott says.