Caterpillar is the world’s largest maker of construction and mining equipment, and it has quietly become one of the biggest suppliers of power for AI data centers: gas engines, generators and turbines. Its backlog has nearly doubled to $72 billion. The shares ran past $1,000 and have fallen about 30% since.
Today’s close against the report’s numbers, updated every weekday. The analysis is as of October 22, 2026; the rating as of October 22, 2026. Both change only when the report is revised.
The cash-flow model’s bear-to-bull range, the probability-weighted value, the price, its 52-week range and the analysts’ average target. The copper line marks the base case; the fine dotted line is today’s close.
Written on October 22, 2026, ahead of its third-quarter results on October 29. Figures are from the company’s filings and releases unless noted. Not investment advice. The author holds no CAT shares.
Caterpillar has three equipment segments of similar size. Construction Industries sells excavators, loaders and bulldozers. Resource Industries sells mining trucks and equipment. Power & Energy makes engines, generator sets, gas turbines (through Solar Turbines) and rail locomotives. Financial Products lends to customers and dealers.
Power & Energy is the story. Data centers need on-site generation, both as backup and, increasingly, as their main supply where the grid cannot keep up. Caterpillar’s power generation sales rose 72% last quarter, gas engine orders now stretch into late 2028 and turbine orders into 2029–2030. It is restarting a mothballed 10-megawatt gas engine line to add 1.5 gigawatts of capacity, on top of a target of 65 gigawatts by 2030.
Second-quarter sales rose 24% to a record $20.5 billion and adjusted earnings per share 73%. All three segments grew: Construction 35%, Resource 20% and Power & Energy 17%, with margins of 23%, 15% and 25%. Backlog reached $72 billion, up $35 billion in a year, and 59% of it is expected to ship within twelve months.
Caterpillar raised its 2026 outlook to sales growth in the mid-to-high teens and free cash flow in the top half of its $6–15 billion range, with about $2.2 billion of tariff costs. The operating profit included $392 million of expected refunds of IEEPA tariffs. Third-quarter results come on October 29.
| FY2021 | FY2022 | FY2023 | FY2024 | FY2025 | TTM Jun 2026 | |
|---|---|---|---|---|---|---|
| Revenue | $51.0B | $59.4B | $67.1B | $64.8B | $67.6B | $74.7B |
| Operating margin | 13.5% | 13.3% | 19.3% | 20.2% | 16.5% | 17.5% |
| Net income | $6.5B | $6.7B | $10.3B | $10.8B | $8.9B | $10.8B |
| Operating cash flow | $7.2B | $7.8B | $12.9B | $12.0B | $11.7B | $13.6B |
| Capital spending | $1.1B | $1.3B | $1.6B | $2.0B | $2.8B | $2.9B |
| Free cash flow | $6.1B | $6.5B | $11.3B | $10.0B | $8.9B | $10.7B |
Sales were flat from 2023 to 2025 as construction demand cooled; operating income fell in 2025 as tariffs and lower prices hit margins. 2026 is a sharp reacceleration, driven by data-center power and a construction rebound. The table includes Cat Financial, whose loans are funded by its own debt.
Caterpillar’s balance sheet has two halves. The machinery business had $5.9 billion of cash and $11.0 billion of debt at the end of June, about $5 billion of net debt. Cat Financial carries another $35 billion of debt, matched by the loans it makes to customers, so this model leaves it out. Caterpillar bought back $1.5 billion of stock and paid $0.7 billion of dividends in the second quarter, and plans about $3.5 billion of capital spending this year.
| Assumption | Base case | Basis |
|---|---|---|
| Sales, 2026 | $78B | Estimate: 2025’s $67.6B plus the guided mid-to-high-teens growth |
| Growth, 2027 and 2028 | 8%, then 6% | Power backlog ships; construction slows; fades to 3% by year 10 |
| Operating margin | 20% rising to 21% | Adjusted margin, less the one-off tariff refunds |
| Reinvestment | $1 for every $3 of new sales | New engine and turbine capacity |
| Discount rate | 9.7% | Beta 1.05, 3% machinery debt |
| Terminal growth | 3.0% | With a 20% return on new capital |
| Bear | Base | Bull | |
|---|---|---|---|
| Growth, 2027 / 2028 | 0% / 2% | 8% / 6% | 12% / 10% |
| Long-run operating margin | 17% | 21% | 23% |
| Discount rate | 10.7% | 9.7% | 8.7% |
| Value per share | $256 | $442 | $676 |
| Probability | 25% | 50% | 25% |
Weighted 25/50/25: $454. The bear case is the usual machinery downturn arriving as data-center orders normalise; the bull case keeps power growing at double digits through 2028.
| Discount rate | 8.5% | 9.0% | 9.5% | 10.0% | 10.5% |
|---|---|---|---|---|---|
| Value per share | $537 | $492 | $454 | $422 | $394 |
Every figure in this valuation comes from one model script, rerun and checked against this page each time the site is built. The XLSX model rebuilds it in live formulas: change any blue input and every year’s cash flow, the bridge to the value, the scenarios and the sensitivity table recalculate.
| To justify the price, you need | Against |
|---|---|
| Sales growth of about 18% a year in 2027 and 2028, then the same fade | 8% and 6% |
| Or a long-run operating margin of about 34% | 21%; Caterpillar has never sustained much above 21% |
Even after a 30% fall the shares trade at about 32 times forward earnings, a multiple Caterpillar has rarely held outside the bottom of a downturn. Analysts are more optimistic, with an average target of about $922, though several cut their targets this month on slowing bookings, dealer inventories and the risk that data-center power demand normalises.
| Risk | Why it matters |
|---|---|
| The machinery cycle | Construction and mining equipment has always been cyclical; Construction grew 35% last quarter. |
| AI spending | Power & Energy’s growth depends on data-center build plans that could slow after 2027. |
| Tariffs and costs | About $2.2 billion of tariff costs this year, plus rising diesel and material costs. |
| Valuation | At about 32 times forward earnings, a normal downturn would hit the shares hard. |
Upside: a power backlog that keeps growing, turbines sold out into 2030, new engine capacity from late 2026, and more tariff refunds.
Caterpillar has become one of the largest suppliers of power for AI data centers, and its backlog makes the next two years visible. About 60% of the company is still construction and mining equipment, and the price assumes about 18% growth a year for two more years.
What would change the value: Third-quarter results on October 29, especially Power & Energy orders and the backlog, are the next test.
Ranges, not three cases. The expected value is the average of 4,000 runs of this report’s own model, with every input drawn from a range: the base case is the middle, and the bear and bull cases are the 10th and 90th percentiles. Business inputs move together; the discount rate moves on its own. The 25/50/25 weighting in the valuation section gives $454. How the ranges work
Two different questions. The rating is relative: it asks whether the stock is cheaper or dearer than the S&P 500 on the same assumptions. The absolute view asks whether it is worth its price at all: on its own the stock trades above our estimated value, which is 38% below the price.
On the same assumptions every report uses (a 5.15% Treasury yield and a 4.5% equity premium), the S&P 500 itself is worth about 68% of its price. The rating compares each stock with that: Buy if it is at least 15% cheaper than the market on this basis, Sell if at least 15% dearer, Hold in between. It is the same rule for every company, whoever owns it. The rating depends on that assumption: it would be Hold if the index grows 6% a year and Sell at 10%, against 8% here. How ratings work
Against the Street: Analysts average about $922 and value Caterpillar on near-term earnings at a premium multiple. This model fades growth to 3% by year ten and holds the margin near 21%, its best level so far.
| Measure | Caterpillar | Industry median | Rank | |
|---|---|---|---|---|
| Revenue growth, last fiscal year | 4.3% | 4.6% | 45 of 82 | Worse than the median |
| Operating margin | 17.5% | 17.4% | 40 of 82 | Better than the median |
| Price to earnings | 27.4× | 26.3× | 44 of 81 | Worse than the median |
| Free cash flow yield | 3.6% | 3.7% | 48 of 81 | Worse than the median |
Peers: the 81 other S&P 500 companies in Industrials with complete data (ADP, ALLE, AME, AOS, AXON, BA, BE, BR, CARR, CHRW, CMI, CPRT, CSX, CTAS, DAL, DD, DE, DOV, EFX, EME, EMR, ETN, EXPD, FAST, FDX, FDXF, FERG, FIX, FTV, GD, GE, GEV, GNRC, GWW, HII, HON, HUBB, HWM, IEX, IR, ITW, J, JBHT, JCI, LDOS, LHX, LII, LMT, LUV, MAS, MMM, NDSN, NOC, NSC, ODFL, OTIS, PAYX, PCAR, PH, PNR, PWR, ROK, ROL, RSG, RTX, SNA, SWK, TDG, TT, TXT, UAL, UBER, UNP, UPS, URI, VLTO, VRSK, VRT, WAB, WM, XYL). Last twelve months where reported, from SEC filings; prices from the latest close. A lower price-to-earnings ratio ranks higher. These figures update with each data run; the rating does not.
The engines are sold out; the shares already know it.
| What | Figures | Source |
|---|---|---|
| Latest results | $20.5B (Sales, Q2 2026, +24%), 21.9% (Adjusted operating margin), $8.17 (Adjusted EPS, +73%), $72B (Backlog, +92%) and others | Q2 2026 results; Results with segment detail, SEC; Earnings call |
| The numbers (five-year table) | Five years of annual figures and the last twelve months | SEC XBRL company facts; latest: 10-K for the period to 2025-12-31, 10-Q for the period to 2026-06-30 |
| Price at writing | $703.84 (Close, Oct 22, 2026) | Yahoo Finance; the time of the quote is stated beside the price |
| Discount rate inputs | 10-year Treasury 5.15%, equity risk premium 4.5% | Fixed for every report so they can be compared; How ratings work |
| Valuation | Every value, case and sensitivity | This site’s model: XLSX, CSV |
| Checked by hand | Not yet | Reports are added to the audit log as they are revised |
| Input | Bear (10th percentile) | Base (median) | Bull (90th percentile) |
|---|---|---|---|
| Growth, first forecast year | 0.0% | 8.0% | 12.0% |
| Growth, second forecast year | 2.0% | 6.0% | 10.0% |
| Operating margin, near term | 17.0% | 20.0% | 21.5% |
| Operating margin, long run | 17.0% | 21.0% | 23.0% |
| Discount rate | 10.7% | 9.7% | 8.7% |
| Simulation result | |
|---|---|
| Expected value (average of 4,000 runs) | $439.17 |
| Likely range, 10th to 90th percentile | $300.66 to $585.59 |
| Median | $432.14 |
| Chance the value is above the price | 2% |
| Chance it is cheaper than the S&P 500 | 34% |
Each input is drawn from a split normal: its bear and bull values are the 10th and 90th percentiles, so the two sides can differ. Business inputs share a common factor (correlation 0.6); the discount rate moves on its own. Inputs not listed are held at their base value. How the simulation works.