Should You Buy, Sell or Hold Caterpillar Stock Post Q3 Earnings?

Caterpillar Inc. CAT delivered a mixed performance in the third quarter of 2025, marking a return to revenue growth after six consecutive quarters of declines. The industrial giant reported higher sales across all segments, driven by strong volume growth, though earnings were pressured by rising costs linked to tariffs.

Both the top and bottom-line figures beat the respective Zacks Consensus Estimate. CAT shares have gained 8.6% post results. 

The company has gained 57% year to date, outperforming the industry’s 54.9% growth. In comparison, the Zacks Industrial Products sector has gained 7% and the S&P 500 has risen 16%.

Meanwhile, peers Komatsu KMTUY and Terex Corporation TEX have gained 23.3% and 0.1%, respectively.

Before addressing the critical question of how investors should position themselves regarding the stock, let us dig deeper into the third-quarter results and evaluate CAT stock’s fundamentals.

CAT’s Q3 Highlights: Record Revenue & Backlog, Margins Dip

Caterpillar posted revenues of around $17.6 billion, an all-time quarterly record. The top line increased 9.5% year over year, supported by a 10% increase in sales volume, a favorable currency impact of 1% and somewhat offset by unfavorable price realization of 1.3%. 
Growth was broad-based, up across all regions and segments. Both the Resource Industries and Construction Industries segments returned to volume growth in the quarter.

Cost of sales increased 16% year over year on higher manufacturing costs, including the impact of tariffs. Adjusted operating profit was down 4% to $3.05 billion. Adjusted operating margin was 17.5% compared with 20% in the third quarter of 2024.

Earnings per share stood at $4.95, down 4% from the year-ago quarter owing to tariffs. For more details, read: CAT Q3 Earnings & Revenues Beat Estimates on Higher Volumes.

Operating cash flow was $8.15 billion in the first nine-month period of 2025 compared with $8.64 billion in the prior-year period. Caterpillar ended the quarter with an all-time high backlog of $39.9 billion.

Caterpillar Lifts 2025 Revenue View, Margin Pressure Remains

CAT now expects 2025 revenues to be “modestly” higher compared with 2024, an improvement from its prior projection of “slightly” higher revenues. 
Net incremental tariffs are projected at $1.6-$1.75 billion for 2025. Considering this impact, Caterpillar expects the adjusted operating margin to be near the bottom of its target range.

The company maintains its revenue projection at $42-$72 billion, and margins are anticipated between 10% and 22%, per the respective revenue levels. This is shown in the chart below.

Caterpillar expects ME&T free cash flow in 2025 to be above the midpoint of its targeted range of $5-$10 billion.

CAT Sees Upward Estimate Revision Activity

Earnings estimates for CAT have moved up for both 2025 and 2026 over the past 60 days. This is shown in the chart below. 

The Zacks Consensus Estimate for 2025 indicates a year-over-year decline of 16.26%. The same for 2026 implies 18.8% growth.

How did Caterpillar’s Industry Peers Perform in Q3

Terex reported revenues of $1.39 billion, 14.4% higher than last year’s quarter, mainly led by acquisitions. Organic growth was a negative 10%. Adjusted EPS was up 2.7% year over year to $1.50 per share. Revenues missed the Zacks Consensus Estimate, while earnings beat the same.  

Komatsu reported adjusted earnings per share of 63 cents, in line with the Zacks Consensus Estimate. Earnings were down 6% year over year. Revenues were $6.66 billion, lower than $6.78 billion in the year-ago quarter.

The broader U.S. manufacturing sector has been in a prolonged downturn, contracting for 26 months through December 2024. After a brief expansion in January and February 2025, the ISM Manufacturing Index has been below 50 for eight straight months. The Index registered 48.7% in October, signaling continued contraction. Rising concerns over tariffs led customers to scale back orders.

Caterpillar’s Premium Valuation

CAT is currently trading at a forward 12-month P/E of 26.87X, at a premium compared with the industry’s 24.57X. Its  Value Score of D suggests a stretched valuation at this moment.

Meanwhile, Komatsu and Terex are cheaper options, trading at a forward 12-month P/E of 11.70X and 8.6X, respectively.

CAT’s Long-Term Growth Drivers Remain Intact

Caterpillar’s long-term outlook is supported by expected increases in U.S. infrastructure spending and growing demand for mining equipment due to the energy transition. As miners are increasingly relying on autonomy to increase productivity and efficiency and improve safety, CAT has been focusing on enhancing its autonomous fleet.

In Energy and Transportation, the increased focus on sustainability and the establishment of data centers will drive the demand for Caterpillar’s equipment. CAT has been seeing growth in aftermarket parts and service-related revenues, which generate high margins. The company is on track to double its service revenues from $14 billion in 2016 to $28 billion in 2026.

How Should Investors Approach CAT Stock?

Caterpillar’s premium valuation, industry pressures and the projected decline in earnings for the current year suggest caution for new investors. 
Existing shareholders should stay invested in Caterpillar’s stock to benefit from its solid long-term demand prospects, backed by infrastructure spending and energy-transition trends, as well as its focus on growing service revenues. The company currently has a Zacks Rank #3 (Hold), which supports our thesis.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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