Caterpillar Inc. (CAT) | Investment Case

1. Company Snapshot

1.a. Company Description

Caterpillar Inc.manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide.Its Construction Industries segment offers asphalt pavers, backhoe loaders, compactors, cold planers, compact track and multi-terrain loaders, excavators, motorgraders, pipelayers, road reclaimers, site prep tractors, skid steer loaders, telehandlers, and utility vehicles; mini, small, medium, and large excavators; compact, small, and medium wheel loaders; track-type tractors and loaders; and wheel excavators.

The Resource Industries segment provides electric rope shovels, draglines, hydraulic shovels, rotary drills, hard rock vehicles, track-type tractors, mining trucks, longwall miners, wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, fleet management, landfill compactors, soil compactors, machinery components, autonomous ready vehicles and solutions, select work tools, and safety services and mining performance solutions.The Energy & Transportation segment offers reciprocating engines, generator sets, integrated systems and solutions, turbines and turbine-related services, remanufactured reciprocating engines and components, centrifugal gas compressors, diesel-electric locomotives and components, and other rail-related products and services for marine, oil and gas, industrial, and electric power generation sectors.The company's Financial Products segment provides operating and finance leases, installment sale contracts, working capital loans, and wholesale financing plans; and insurance and risk management products for vehicles, power generation facilities, and marine vessels.

The All Other operating segment manufactures filters and fluids, undercarriage, ground engaging tools, etc.The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc.in 1986.

The company was founded in 1925 and is headquartered in Deerfield, Illinois.

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1.b. Last Insights on CAT

Caterpillar's recent performance was driven by its impressive Q3 earnings, which surpassed Wall Street expectations. The company's adjusted earnings per share of $4.95 exceeded the consensus estimate of $4.52. Revenue climbed 10% to $17.64 billion, also beating analyst forecasts. Analysts have raised their forecasts following the better-than-expected results. Additionally, the company's strategic expansion and positive analyst sentiment have contributed to its growth. Caterpillar's energy and transportation segment is experiencing AI-powered growth, driven by data center construction. Evercore ISI upgraded the stock to "outperform" from "in-line".

1.c. Company Highlights

Last Price	603.17
Change Percentage	0.67%
Open	604
Previous Close	599.15
Market Cap ( Millions)	282572
Volume	1761701
Year High	607
Year Low	267.3
M A 50	540.25
M A 200	413.66

FCF Yield	3.36%
Dividend Yield	0.97%
ROE	48.20%
Debt / Equity	156.24%
Net Debt / EBIDTA	168.83%
Price To Book	13.68
Price Earnings Ratio	30.51
Price To FCF	29.8
Price To sales	4.37
EV / EBITDA	20.97

2. Caterpillar's Q3 2025 Earnings: A Strong Performance

Caterpillar reported a robust financial performance in Q3 2025, with sales and revenues reaching an all-time record of $17.6 billion, a 10% increase from the previous year. The company's adjusted operating profit margin was 17.5%, slightly above expectations, despite the net impact of incremental tariffs being near the top end of the estimated range. Earnings per share (EPS) came in at $4.95, beating analyst estimates of $4.53. The company's ME&T free cash flow was $3.2 billion, $500 million higher than the prior year, and the company deployed $1.1 billion to shareholders through dividends and share repurchases.

Publication Date: Oct -30

                                    📋 Highlights
                                    Record Sales Growth:
                                                Sales reached $17.6 billion, up 10% YoY, the highest quarterly revenue in Caterpillar's history.
Backlog Expansion:
                                                Backlog surged to $39.8 billion, a 6.5% increase, driven by Energy & Transportation segment strength.
Strong Free Cash Flow:
                                                Generated $3.2 billion in ME&T free cash flow, returning $1.1 billion to shareholders via dividends and buybacks.
Margin Resilience:
                                                Adjusted operating profit margin hit 17.5%, outperforming expectations despite $500M–600M tariff costs.
Segment Performance:
                                                Energy & Transportation sales rose 25% YoY, contributing $1.7 billion in profit with a 20% margin.

                                

Segment Performance

The company's segment performance was strong, with Sales to users increasing 12% year-over-year, led by 25% growth in Energy & Transportation. Construction Industries sales to users were up 7%, while Resource Industries sales to users increased 6%. Energy & Transportation's segment margin was 20%, with profit increasing 17% to $1.7 billion. The company's services revenues are expected to be about flat versus 2024, but the company is optimistic about its underlying business, with business activity and customer financial health remaining strong.

Outlook and Valuation

The company expects strong sales growth in the fourth quarter, driven by higher volumes in all three segments, and has improved its full-year outlook, with sales and revenues expected to increase modestly. Analysts estimate next year's revenue growth at 5.9%. With a P/E Ratio of 29.62 and an EV/EBITDA of 18.2, the company's valuation multiples suggest that the market is pricing in a certain level of growth. The company's ROIC is 15.63%, indicating a strong return on invested capital. The company's dividend yield is 1.0%, and the free cash flow yield is 3.46%, providing a relatively attractive return for investors.

Tariff Impact and Management

The company noted that the emerging data center prime power opportunity is exciting, with a great opportunity for services, and is seeing healthy ordering activity. The company is managing tariffs through mitigating actions, including short-term cost reductions and certifying more USMCA-compliant products. The company expects the fourth quarter to be the peak of tariff cost headwinds, but the timing of mitigation actions will depend on the degree of certainty in the situation. As Joe noted, "We're taking a measured approach and will use everything in our toolkit to manage tariffs."

3. NewsRoom

CAT Strategic Metals Announces Rights Offering Closing

Dec -05

Source: newsfilecorp.com

BHP and Rio Tinto welcome first Caterpillar battery-electric haul trucks to the Pilbara

Dec -05

Source: businesswire.com

AI Bubble? Non-Tech Stocks Worth a Look

Dec -04

Source: zacks.com

Snowflake's Q3 Success Overshadowed by Cautious Q4 Outlook and Valuation Concerns

Dec -04

Source: gurufocus.com

The Big 3: CAT, INTC, TSLA

Dec -03

Source: youtube.com

Edgestream Partners L.P. Decreases Holdings in Caterpillar Inc. $CAT

Dec -03

Source: defenseworld.net

CAT Stock Trades at Premium Value: Should You Buy, Hold or Sell?

Dec -02

Source: zacks.com

Analyst Favors Caterpillar Over Deere As Machinery Markets Near Trough Levels

Dec -01

Source: feeds.benzinga.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.83%)

6. Segments

Machinery, Energy & Transportation - Energy & Transportation

Expected Growth: 4.5%

Growing demand for industrial and marine applications, increasing investments in rail infrastructure, and emerging trends in natural gas reciprocating engines drive the Energy & Transportation segment's growth

Machinery, Energy & Transportation - Construction Industries

Expected Growth: 4.5%

Caterpillar's growth is driven by increasing infrastructure investments, rising global energy demand, and expanding financial services. The company's strong brand, competitive pricing, and innovative products position it for long-term success.

Machinery, Energy & Transportation - All Other

Expected Growth: 4.5%

Caterpillar Inc. benefits from increasing infrastructure development, rising commodity prices, and growing demand for mining and construction equipment, driving long-term growth.

Machinery, Energy & Transportation - Resource Industries

Expected Growth: 5.2%

Increasing infrastructure development, rising energy demand, and growing mining activities will fuel demand for Caterpillar's machinery, energy, and transportation solutions, driving growth in the mining, oil and gas, and construction industries.

Financial Products

Expected Growth: 7.8%

Caterpillar’s Financial Products segment growth is driven by increasing demand for Cat equipment, expansion of wholesale and retail financing for dealers, and growth initiatives, resulting in an expected 7.8% CAGR.

Corporate Items and Eliminations

Expected Growth: 3.4%

Corporate items and eliminations are expected to grow moderately, driven by increasing infrastructure development and a rebound in mining activities, benefiting Caterpillar's sales and profitability.

Inter-Segment Sales and Revenues

Expected Growth: 4.8%

Caterpillar's inter-segment sales growth driven by rising demand in construction, mining, and energy sectors, supported by increasing investments in infrastructure development globally

7. Detailed Products

Construction Equipment

Caterpillar offers a wide range of construction equipment, including excavators, backhoes, skid-steer loaders, and more.

Mining Equipment

Caterpillar provides mining equipment such as haul trucks, loaders, and drills for surface and underground mining operations.

Industrial Engines

Caterpillar manufactures industrial engines for a variety of applications, including generators, pumps, and compressors.

Gas Turbines

Caterpillar offers gas turbines for power generation, oil and gas, and industrial applications.

Diesel-Electric Locomotives

Caterpillar provides diesel-electric locomotives for freight and passenger rail transportation.

Forestry Equipment

Caterpillar offers forestry equipment, including harvesters, feller bunchers, and skidders, for logging and wood processing.

Government and Defense Products

Caterpillar provides specialized equipment and solutions for government and defense applications.

8. Caterpillar Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Caterpillar Inc. has a low threat of substitutes due to its unique product offerings and strong brand recognition in the heavy equipment and machinery industry.

Bargaining Power Of Customers

Caterpillar Inc. has a medium bargaining power of customers due to the presence of large and established customers in the construction and mining industries, but the company's strong brand and product offerings mitigate this power.

Bargaining Power Of Suppliers

Caterpillar Inc. has a low bargaining power of suppliers due to its large scale of operations and diversified supply chain, which reduces its dependence on individual suppliers.

Threat Of New Entrants

Caterpillar Inc. has a low threat of new entrants due to the high barriers to entry in the heavy equipment and machinery industry, including significant capital requirements and technological expertise.

Intensity Of Rivalry

Caterpillar Inc. operates in a highly competitive industry with established rivals such as John Deere and Komatsu, leading to a high intensity of rivalry.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	66.11%
Debt Cost	4.41%
Equity Weight	33.89%
Equity Cost	9.63%
WACC	6.18%
Leverage	195.06%

11. Quality Control: Caterpillar Inc. passed 6 out of 9 key points

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

TransDigm Group

A-Score: 6.4/10

Value: 3.0

Growth: 7.9

Quality: 6.7

Yield: 9.0

Momentum: 4.0

Volatility: 8.0

1-Year Total Return ->

PACCAR

A-Score: 6.0/10

Value: 3.7

Growth: 6.7

Quality: 6.1

Yield: 8.0

Momentum: 3.0

Volatility: 8.3

1-Year Total Return ->

Paychex

A-Score: 5.8/10

Value: 1.8

Growth: 5.8

Quality: 9.0

Yield: 6.0

Momentum: 3.0

Volatility: 9.3

1-Year Total Return ->

REV Group

A-Score: 5.8/10

Value: 4.1

Growth: 6.2

Quality: 6.3

Yield: 4.0

Momentum: 10.0

Volatility: 4.0

1-Year Total Return ->

Caterpillar

A-Score: 5.6/10

Value: 2.0

Growth: 7.0

Quality: 7.0

Yield: 3.0

Momentum: 7.5

Volatility: 7.3

1-Year Total Return ->

Deere

A-Score: 5.3/10

Value: 2.8

Growth: 6.9

Quality: 4.8

Yield: 2.0

Momentum: 6.5

Volatility: 8.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

5.44%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

6.18%

Caterpillar Inc. - US1491231015

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on CAT

1.c. Company Highlights

Strong Momentum

Average Growth

Average Quality

Earnings Beats

Revenues Miss

Medium Volatility

Average Yield

Fairly Valued

Earnings Miss

Better Quality

Less Volatile

Expensive

Revenues Beats

2. Caterpillar's Q3 2025 Earnings: A Strong Performance

Segment Performance

Outlook and Valuation

Tariff Impact and Management

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.83%)

6. Segments

Machinery, Energy & Transportation - Energy & Transportation

Expected Growth: 4.5%

Machinery, Energy & Transportation - Construction Industries

Expected Growth: 4.5%

Machinery, Energy & Transportation - All Other

Expected Growth: 4.5%

Machinery, Energy & Transportation - Resource Industries

Expected Growth: 5.2%

Financial Products

Expected Growth: 7.8%

Corporate Items and Eliminations

Expected Growth: 3.4%

Inter-Segment Sales and Revenues

Expected Growth: 4.8%

7. Detailed Products

Construction Equipment

Mining Equipment

Industrial Engines

Gas Turbines

Diesel-Electric Locomotives

Forestry Equipment

Government and Defense Products

8. Caterpillar Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Caterpillar Inc. passed 6 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

12.e Scoring ^Insights

12.f DCF ^BETA