RBC Capital Markets late Tuesday initiated coverage of Caterpillar (NYSE:CAT) with a Sector Perform rating, saying that while the industrial giant is well-positioned across its core markets, its current valuation already reflects much of the near-term optimism.
Lead analyst Sabahat Khan described Caterpillar (NYSE:CAT) as a “premier manufacturer of modern-day picks and shovels,” highlighting its leadership in construction machinery and mining equipment, which together accounted for more than half of 2024 revenue. However, the firm believes the stock’s 25.5 times forward price-to-earnings ratio, well above its three-year average of 15.8×, suggests limited upside potential in the near term.
RBC expects construction markets to recover gradually once U.S. infrastructure priorities and tariff-related uncertainties stabilize, noting that about 40% of Infrastructure Investment and Jobs Act funding remains unspent. The firm sees the resource industries segment benefiting from a supportive outlook for gold and copper prices, which should sustain mining capital expenditures through 2026.
Meanwhile, data centers continue to be a key growth driver, as Caterpillar’s (CAT) power generation business, now 12% of total sales, has grown roughly 22% annually since 2022, supported by surging demand for backup and primary power solutions tied to cloud and AI infrastructure.
RBC forecasts 2026 adjusted EPS of $20.72, applying a 27 times multiple to reach its $560 target. The firm projects flat revenue for 2025 as tariffs weigh on margins by an estimated $1.5 billion to $1.8 billion, with modest margin recovery expected the following year as mitigation measures take effect.
While RBC acknowledged Caterpillar’s (CAT) robust order backlog — a record $38 billion as of Q2 2025 — and strong free cash flow generation, it said much of the company’s “mid-cycle strength” is already priced in.
“Caterpillar (CAT) is well-positioned against what we see as a generally mid-cycle operating backdrop,” the report said. “We believe that these expectations are appropriately reflected in the valuation today.”