Should You Buy, Sell or Hold Caterpillar Stock Post Q4 Earnings?

Caterpillar Inc. CAT delivered an impressive performance in the fourth quarter of 2025, posting record revenues on higher volumes across all segments. The industrial giant also returned to positive earnings growth after a five-quarter stint of declines despite tariff-related pressures.

Both the top and bottom-line figures topped the respective Zacks Consensus Estimate, sending CAT shares up 5.4% following the results.

Over the past year, CAT stock has gained 86%, outperforming the industry’s 84.1% growth. In comparison, the Zacks Industrial Products sector has gained 21.6% and the S&P 500 has risen 15.6%.

It has also outpaced peers Komatsu KMTUY and Terex Corporation TEX, which gained 52.5% and 36.9%, respectively.

Before addressing how investors should position themselves in CAT stock, let’s take a closer look at the company’s quarterly performance and underlying fundamentals.

CAT’s Q4 Highlights: Record Revenue & Backlog, Margins Dip

Caterpillar posted revenues of around $19.1 billion in the fourth quarter of 2025, an all-time quarterly record. The top line rose 18% year over year, mainly led by higher volumes, with growth reported across all segments. 

Backlog increased sequentially by $11.3 billion during the quarter, reaching a record $51.2 billion.

Cost of sales climbed 29% year over year due to higher manufacturing expenses, including the impact of tariffs. As a result, adjusted operating profit declined 9% to $2.66 billion, while adjusted operating margin narrowed to 15.6% from 18.3% in the fourth quarter of 2024.

Earnings per share stood at $5.16, up 0.4% from the year-ago quarter.  Even though modest, the quarter marked a return to positive earnings growth for Caterpillar following five quarters of declines.

For full-year 2025, operating cash flow totaled $11.7 billion, down from $12.7 billion in the prior year. The company returned about $7.9 billion to shareholders through dividends and share repurchases. CAT ended 2025 with roughly $10 billion in cash and equivalents, up from about $6.9 billion at the end of 2024.

CAT 2026 Outlook: Revenues to Grow, Margin Pressure Remains

For 2026, the company expects year-over-year revenue growth near the upper end of its long-term 5-7% CAGR target. Adjusted operating margin is expected near the bottom of the targeted range, including continued tariff pressures. 

The company projects adjusted operating margins of 15–19% at revenue levels of around $60 billion. If revenues reach $72 billion, operating margins are expected to be 18–22%, while revenues of $100 billion could support margins in the range of 21–25%. This is shown in the chart below.

Full-year Machinery, Power & Energy (MP&E) free cash flow is expected to be slightly lower than 2025 levels. 

Caterpillar’s Earnings Estimates Trend Higher

Earnings estimates for CAT have moved up for both 2026 and 2027 over the past 60 days, as shown in the chart below. 

The Zacks Consensus Estimate for 2026 points to year-over-year earnings growth of 18.5%, while the 2027 estimate implies growth of 21.8%, reflecting improving confidence in the company’s earnings trajectory.

How do Caterpillar’s Peers Compare?

Komatsu reported adjusted earnings per share of 68 cents for the quarter ended Dec. 31, 2025, which beat the Zacks Consensus Estimate of 60 cents, but marked a 12% decline year over year. 

Revenues were $6.65 billion, a 2% increase from the year-ago quarter. Komatsu reported sales increase in the Construction, Mining & Utility Equipment segment due to the positive effects of the Japanese yen’s depreciation and improved selling prices, which offset lower volumes. Industrial Machinery & Others’ sales and profits increased, mainly due to increased sales of large presses for the automotive industry and higher-margin excimer laser maintenance for the semiconductor industry.

Terex is slated to release fourth-quarter 2025 results on Feb. 11. The Zacks Consensus Estimate for Terex’s fourth-quarter 2025 earnings is pegged at $1.12 per share, suggesting year-over-year growth of 45.5%. Terex has a trailing four-quarter average surprise of 24.3%. The consensus estimate for Terex’s revenues for the quarter is $1.33 billion, suggesting 6.9% growth from the year-ago quarter.  

Caterpillar’s Premium Valuation

CAT is currently trading at a forward 12-month P/E of 29.44X, at a premium compared with the industry’s 27.04X. 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 16.75X and 10.98X, respectively.

Caterpillar Sets Long-Term Growth Targets

Caterpillar is targeting revenue growth at a CAGR of 5–7% through 2030, with MP&E free cash flow projected in the $6-$15 billion range. The company plans to return substantially all MP&E free cash flow to shareholders over time and aims to grow its dividend at a high-single-digit rate, following a 7% increase in 2025.

Operational targets include increasing Construction Industries’ sales to users from 1.05x in 2025 to 1.25x by 2030, triple autonomous trucks in Resource Industries from 2025 levels, and growing Power Generation sales from 1.3x to more than 2.0x. Connected assets are expected to rise from more than 1.6 million to 2 million, while e-commerce sales per business day are projected to jump from 4% to more than 50% by 2030.

The company’s long-term outlook is supported by rising U.S. infrastructure spending, growing demand for mining equipment tied to the energy transition and increased adoption of autonomous solutions to improve productivity and safety. In Power & Energy, sustainability initiatives and data-center investments are driving demand. Caterpillar is also expanding its high-margin aftermarket business, with service revenues targeted to increase from $24 billion in 2025 to $30 billion by 2030.

How Should Investors Approach CAT Stock?

Existing shareholders should continue to hold Caterpillar stock, supported by strong long-term demand drivers, improving earnings visibility and a growing, high-margin services business. Upward earnings estimate revisions further reinforce the company’s positive outlook. However, CAT’s premium valuation suggests that new investors may want to wait for a more attractive entry point. 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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