CAT Outpaces Industry in 3 Months: Time to Buy the Stock?

Caterpillar Inc. CAT shares have gained 9.5% in the past three months, outperforming the manufacturing - construction and mining industry’s 9.2% growth. The Zacks Industrial Products sector and the S&P 500 have gained 5.5% and 6.8%, respectively, in the same period.

CAT has also outpaced the three-month price performances of Hitachi Construction Machinery Co., Ltd. HTCMY, Komatsu Ltd. KMTUY and Cummins Inc. CMI.

CAT Stock's Price Performance Vs Industry, Sector, S&P 500 & Peers

What’s Driving CAT Ahead of the Industry?

Caterpillar recently announced a 7% hike in its quarterly dividend to $1.51 per share, marking the 31st consecutive year of dividend increases. This implies a yield of 1.63%, higher than the industry average of 1.52%, the sector’s 1.46% and the S&P 500’s 1.22%.

With a payout ratio of 26.91%, also above the industry’s 26.31%, Caterpillar continues to demonstrate its commitment to shareholder returns. The company’s five-year dividend growth rate of 7.7% further highlights its consistent performance. The latest dividend hike is particularly noteworthy as it follows a weaker-than-expected first quarter, suggesting management’s confidence in long-term cash generation despite near-term challenges.

Recent results reflected softness in Caterpillar’s core Construction Industries and Resource Industries segments as volumes and profits declined due to weaker demand in end markets. However, the Energy and Transportation (E&T) segment has proven to be a bright spot delivering improved profits, that partially offset weaker performances in the other two segments, which is expected to continue through the remainder of the year.

Caterpillar maintains its broad spectrum of revenues, ranging from $42 billion to $72 billion. According to the revenue levels, margins are expected to range between 10% and 22%. Excluding tariffs, Caterpillar expects revenues in 2025 to be flat year over year and the adjusted operating margin is likely to be in the top half of the corresponding target range. Including tariffs, revenues are anticipated to decline slightly year over year and the adjusted operating profit margin is expected within the target range.

Looking ahead, Caterpillar stands to benefit from several structural tailwinds. The U.S. Infrastructure Investment and Jobs Act is expected to drive a surge in construction projects, bolstering equipment demand. The global transition toward clean energy is also creating a stronger need for critical minerals, supporting long-term demand for Caterpillar’s mining equipment. In addition, the company’s autonomous mining fleet, valued for is safety and efficiency, is gaining traction in the industry.

Caterpillar is also capitalizing on the global expansion of data centers driven by the growth of generative AI. The company is seeing strong demand for its reciprocating engines used in these facilities and is planning a multi-year capital investment to double its production capacity. CAT’s efforts to grow its aftermarket parts and service-related revenues, which generate high margins, will also aid growth.

Mixed Estimate Revision Trends for Caterpillar

The Zacks Consensus Estimate for CAT’s 2025 earnings indicates a year-over-year decline of 14.6%. The consensus mark for revenues implies a drop of 2.4%. However, earnings estimates for 2026 imply 12.8% growth, with revenues rising 4.6%.

Earnings estimates for Caterpillar for 2025 have moved down over the past 60 days, while the estimates for 2026 have moved up.  (Find the latest earnings estimates and surprises on Zacks Earnings Calendar.)

CAT Stock Offers Attractive Returns

Caterpillar’s return on equity (ROE) is 53.77%, higher than the industry average of 53.08% and the S&P 500’s 32%. Meanwhile, Komatsu offers a ROE of 13.56%, Hitachi 10.7% and Cummins 26.9%.

Caterpillar Shares are Expensive

Caterpillar is currently trading at a forward 12-month price/earnings (P/E) ratio of 18.71X compared with the industry average of 17.79X. 

Compared with peers, CAT appears relatively expensive. Komatsu, Hitachi and Cummins are all currently trading lower at 10.71, 9.93 and 14.27, respectively as shown in the chart below.

Our Final Take on CAT Stock

CAT’s premium valuation, combined with the downward estimate revisions for this year, suggests 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. CAT’s strong financial position enables it to invest in its businesses and return cash to shareholders through share buybacks and consistent dividend payments.

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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