Bull of the Day: Caterpillar (CAT)

Caterpillar Company Overview

Zacks Rank #1 (Strong Buy) stock Caterpillar (CAT) is the largest global construction and mining equipment manufacturer in the world. Founded in 1925, the company serves a wide range of sectors, including infrastructure, mining, oil and gas, rail-related products, engines, and backup power solutions. The company also operates Cat Financial, a segment providing customer financing, equipment loans, heavy equipment insurance, and operating leases. Additionally, Caterpillar entered the artificial intelligence business in 2018, focusing on autonomy, physical AI, and AI models.

Caterpillar: The AI Darkhorse

Caterpillar has quietly emerged as an AI dark horse as a classic “picks and shovels” investment. The current AI buildout, led by hyperscalers like Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN), and Google (GOOGL), is the largest industrial buildout since the railroad boom of the late 19^th century.

Meanwhile, according to Wall Street analyst estimates, AI spending will go vertical over the next few years.

Caterpillar benefits from the AI boom in several ways, including:

·       Data Center Demand: Energy is currently the biggest bottleneck of the AI revolution. As a result, Caterpillar’s turbines, generator sets, and microgrids are likely to be in demand for the foreseeable future.

·       Autonomy: Caterpillar was an early-mover in the industrial autonomous revolution. The company already has a global fleet of over 800 autonomous mining trucks, with more to come.

·       Mining Demand: AI data centers require a large amount of copper, steel, concrete, and silver. Caterpillar sells the machinery needed to dig up these raw materials for the AI supply chain.

·       Cat AI Assistant: Cat AI, a voice-controlled AI agent, allows operators to control machine functions and work safer and more efficiently. AI leader NVIDIA (NVDA) is a partner on the project.

Caterpillar has a Record Backlog

There’s nothing Wall Street investors like more than revenue visibility. As of last quarter, Caterpillar’s order backlog swelled to a record $72 billion, soaring 92% year-over-year. Zacks Consensus Analyst Estimates expect Caterpillar to grow earnings at a mid-double-digit clip through 2027.

Wall Street Continues to Underestimate Caterpillar’s Growth

Caterpillar is consistently beating Wall Street expectations. The company has surpassed Zacks Consensus Estimates for four consecutive quarters, with an average surprise of 18.12%.

Low Volatility & Robust Technical Set Up

Between the War in Iran and a flurry of AI headlines, tech stocks have been volatile lately. However, thanks to Caterpillar’s diverse and well-established businesses, the company offers AI exposure with a fraction of the volatility of a pure-play AI stock. In addition, the stock offers investors a low-risk entry zone as it uniformly retreats to the 200-day moving average.

Bottom Line

Caterpillar offers investors a rare combination of industrial value, consistent earnings beats, and direct upside to the generational AI revolution. Supported by a record $72 billion order backlog and a low-volatility pullback to key technical support, the “picks and shovels” play offers investors a way to capture AI-driven growth.

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

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