CATERPILLAR INC (CAT): what the price requires

At today's price, CATERPILLAR INC (CAT) is priced for today's economics sustained for ~10.3 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-13 · Source: https://boothcheck.com/report/CAT

Headline

FieldValue
TickerCAT
CompanyCATERPILLAR INC
Current price$933.97/sh
CompositionNorth America 54% / Latin America 10% / EAME 19% / Asia/Pacific 17%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed34.5%
Operating margin today16.4%
Margin expansion implied+18.1pp
Must persist for10.3y
Multiple paid40x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 10.3% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2 years.

Reconcile: at the x-ray's 9.3% required return this reads ~8.2 years; the models below use their own rates.

How unusual the bet is: high

ReferenceValue
vs own history+0.07σ
cohort percentile (of 225 peers)83
sustained it ~10 years at this level14%
implied end-window share1%

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset3.45x4expensive
Earnings6.65x5expensive
Relative2.46x3expensive
Growth1.08x3expensive

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.8%); the inversion above states its own rate.

Per-Model Detail (n=15)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$539.091.73xyesFCF base $10.9B, growth 12% (input: historical growth), terminal g 4.0%, WACC 8.8%, 6yr projection
DCF Exit MultipleGrowth$1013.520.92xyesExit EV/EBITDA: 31.8x / 33.8x / 35.8x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative$538.801.73xyesP/E 26.45x (blended: sector 18x + trailing (TTM) 46x), scenarios: 21.8x / 26.4x / 31.1x (bear / base = sector held flat / bull), EV/EBITDA 18.53x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$218.794.27xyesBV/sh $40.06, ROE (TTM) 50.5%, ke 9.3%
Two-Stage Excess ReturnAsset$626.641.49xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$867.121.08xyesRev $70.8B, growth 12% (input: historical growth; tapered), Terminal P/S: 5.1x / 6.1x / 7.2x (bear / base = today's held flat / bull, cap 12x)
Growth-Adjusted P/ERelative——no—
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$130.227.17xyesNormalized EBIT (5y avg op income, one-time charges added back) $10.86B × (1−21%) / WACC 8.8% → EPV (no growth)
Residual IncomeAsset$354.412.64xyesBV $40.06 + 5yr PV of (ROE (TTM) 50.5% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$134.546.94xyes√(22.5 × EPS $20.08 × BVPS $40.06) — Graham's conservative floor
EV/EBITDA RelativeRelative$280.753.33xyesEBITDA $13.97B × sector EV/EBITDA 12.0x
FCF YieldEarnings$140.796.63xyesFCF $9481.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$134.976.92xyesSBC-adj FCF $9.23B (FCF $9.48B − SBC $0.25B) capitalized at Kₑ
Ben Graham FormulaEarnings$140.546.65xyesEPS $20.08 × (8.5 + 2×-0.1%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$19.9846.74xyesBV $40.06 × (ROIC 4.4% / WACC 8.8%) (excluded from median)
P/Sales SectorRelative$379.752.46xyesRevenue $70.75B × sector P/S 2.5x
PEG Fair ValueRelative——no—
Earnings YieldEarnings$217.084.30xyesEPS $20.08 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$32.1b
Net debt / NOPAT (after-tax)3.51x
Net debt / operating income (pre-tax)2.78x
Share count CAGR (buyback)-3.6%
Burning cashno

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

Bull Case

What the static valuation methods miss about Caterpillar is that the machine sale is the beginning of the relationship, not the end of it. A backhoe or a mining truck runs for years and needs parts, rebuilds, and service that whole time, and almost all of that flows through a network the 10-K describes as "a network of 108 distributors covering 159 countries" whose dealers, in most cases, make "sales and servicing of our products are the dealers' principal business." That installed base is the moat. It generates aftermarket revenue that holds up even when new-equipment orders soften, and it locks customers into Caterpillar parts and Caterpillar-trained mechanics in a way a competitor cannot dislodge by underpricing a single machine. The asset-value and earnings-power models price the current year's profit; they do not price the annuity riding on millions of machines already in the field.

The growth lever right now is electricity. The filing tells you where management sees the demand, noting that in Power & Energy it anticipates "growth in Power Generation for both reciprocating engines and turbines and turbine-related" products, and the surge behind that line is data-center power, where operators need both prime and backup generation faster than the grid can supply it. That is a structurally different demand source from the construction and mining cycles that historically defined the company, and it arrived just as the order book inflected: backlog hit a record $63 billion in the most recent quarter, up roughly 79% year over year. A backlog that large is forward revenue the company has already won.

Capital discipline rounds out the case. Construction Industries, the largest segment, grew sales 30% in the quarter with margin expanding to 21.4% and segment profit up about 50% on higher volume and pricing, the kind of incremental margin that signals real operating leverage rather than a volume-only beat. Share count has been shrinking at roughly 3.6% a year, so the per-share earnings power compounds on top of the operating gains. The bull case is not that Caterpillar is cheap on today's profit; it plainly is not. It is that the durable parts annuity plus a genuinely new power-demand cycle can carry the kind of growth the price assumes.

Bear Case

Look at what the different valuation approaches are actually saying, and the bear case writes itself. The methods grounded in what Caterpillar owns and earns today, asset value, earnings power, and peer multiples, all land far below the current price; the earnings-power lenses that capitalize current cash flow reach only a fraction of it. The single approach that reaches today's price is the forward growth model, and it gets there only by crediting many years of compounding at rates the company has rarely sustained for long. When the conservative methods and the optimistic method disagree this sharply, history says the conservative ones are usually the more honest read, because they are anchored to demonstrated results rather than to an extrapolation. The price is betting on the extrapolation.

The arithmetic of that bet is demanding. At roughly 42 times operating income, the multiple sits at the very top of the peer distribution, and to justify it the business has to hold growth near its self-funding ceiling for about eleven years. The near-term pace is within what Caterpillar has recently delivered; the stretch is the duration. Only about one in seven comparable fast-growers has kept that up for a decade, and Caterpillar is a cyclical at heart. The 10-K is candid that "demand for our products and services generally increases in those regions and countries experiencing economic growth and investment", which is another way of saying the order book turns down when the world economy does. A backlog built in a strong cycle is not a guarantee through a weak one.

Two specific pressures are visible right now. Tariffs are a real cost: management expects full-year 2026 tariff costs of $2.2 billion to $2.4 billion, and the filing attributes recent unfavorable manufacturing costs largely to "the impact of higher tariffs". Resource Industries, the mining segment, already shows the strain, with segment profit down 39% and margin off 700 basis points in the quarter on tariffs and softer volume. And the balance sheet is not a fortress: net debt sits around $32 billion, roughly 2.8 times operating income, so a downcycle would land on a company that carries meaningful leverage into it. The durability premium the price pays assumes the cycle behaves; the bear case is that cyclicals eventually do what cyclicals do.

Valuation

The bet in Caterpillar's price is about duration, not rate. At today's level the market pays roughly 42 times company-wide operating income, which inverts to a requirement that the company grow near its self-funding ceiling for about eleven years. The near-term growth pace is within reach of what Caterpillar has recently delivered; the demanding part is keeping it up for a decade, and the record shows only about 14% of comparable fast-growers sustained that pace that long. That is the assumption the buyer is underwriting.

The methods sort into a clean pattern. The asset-value lenses, starting from book value near $40 per share and adding the returns earned above the cost of equity, land well below the price. The earnings-power methods that capitalize current free cash flow land lower still, reflecting that a single year of profit, even a strong one, cannot reach today's level. Peer multiples, even blended toward the company's rich trailing figure, fall short. Only the forward-growth framing reaches the price, and it does so by holding today's multiple roughly flat across a six-year projection. The spread across families IS the premium: the market is paying for durable compounding that the static frames structurally cannot price, which is the correct read for a company with a genuine installed-base annuity and a new power-demand cycle, and also the correct warning that the entire valuation rests on the growth lens being right.

Solvency frames how much margin for error that bet has. Caterpillar carries net debt of about $32 billion against trailing operating income of roughly $12 billion, putting leverage near 2.8 times. A meaningful piece of that debt funds the captive financing arm, which is normal for an equipment maker, but it still means the company enters any downturn levered rather than cash-rich, with liquid assets near $4 billion. The cohort comparison sharpens the picture: the multiple sits at the very top of the industrial peer set, so a growth disappointment costs more here than at a peer trading nearer its own demonstrated value. The aftermarket annuity is the reason the premium is defensible; the cyclicality and the leverage are the reasons it is not unlimited.

Catalysts

The most recent quarter was the clearest evidence yet for the growth the price assumes. Revenue rose 22% year over year to $17.4 billion, and backlog reached a record $63 billion, up about 79%. The mix inside that beat matters: Construction Industries grew sales 30% with segment margin up to 21.4% and profit up roughly 50%, while Resource Industries went the other way, with sales up only 4% and segment profit down 39% as tariffs and weaker volume compressed margin by 700 basis points. The strategic standout was Power & Energy, where management is expanding large reciprocating-engine capacity to meet data-center power demand.

Two variables will decide whether the demanding multiple is earned. The first is tariffs: full-year 2026 tariff costs are now guided to $2.2 billion to $2.4 billion, revised down from $2.6 billion, with the first-quarter hit coming in lighter than feared at about $600 million. The second is the durability of the data-center order flow, which is converting into the record backlog but has yet to prove it holds across a full build cycle. Management lifted full-year sales-growth guidance to low double digits and said operating margin and free cash flow should come in higher than its January view, so the next prints are a direct test of whether the power cycle offsets the mining softness and the tariff drag.

Peer Cohorts (Per Segment, With Filing Citations)

Construction Industries (reported)

Resource Industries (reported)

Power & Energy (reported)

Financial Products (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Q1 2026 earnings release, April 30 2026

View the full interactive CAT report on boothcheck