Caterpillar: the record backlog is real, but the price already pays for it
Caterpillar’s $72bn backlog (+92% y/y) and data-center power demand are genuine, but at 23.1x our FY27E EPS of $31.81 the shares pay for them in full while margins sit at a cycle high. We initiate at Hold with a $695 target.
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Key takeaways
- The backlog underwrites FY27E revenue of $90.5bn (+14%); 59% of the $72bn ships within 12 months
- Power & Energy earned a 24.6% margin on 39% of segment sales in 2Q26, and we think the demand is structural
- The 2Q26 margin of 21.9% included $392m of IEEPA tariff refunds; we model 19.5% in FY26E and 20.0% in FY27E
- Initiate at Hold with a $695 target (bear $390, bull $915), a total return of −4.6% including the dividend
Investment thesis
The $72bn backlog (+92% y/y) and data-center power demand are genuine: power-generation sales to users rose 72% in 2Q26. But margins sit at a cycle high, and the price needs 14% annual cash-flow growth for ten years against 7.0% in our base case, so upside to downside is only 0.5x.
Valuation
Our $695 target applies 20x to NTM adjusted EPS of $34.82, below the 22x machinery and power peer median to allow for peak margins. 17x FY27E EV/EBITDA gives $685. Bull is $915 and bear $390, weighted 25/50/25; a DCF gives $446.
Our estimates
| Line | FY26E | FY27E | FY28E |
|---|---|---|---|
| Revenue | $79.4bn | $90.5bn | $97.0bn |
| EPS | $27.47 | $31.81 | $35.57 |
| Consensus | $27.33 | $32.59 | $39.21 |
| Ours vs consensus | +0.5% | −2.4% | −9.3% |
Risks to our view
- A data-center capex pause that stalls power orders, worth $130 to $305 a share
- A sharper construction destock, with dealers cutting inventory by over $1bn, worth about $60 a share
- Higher rates lifting buyer financing costs, worth about $50 a share
- Tariff costs rising above $2.2bn a year, worth about $40 a share
- Upside risk: a faster capacity ramp lifting FY27E EPS above $36, worth about $100 a share