Caterpillar Was The Bargain A Year Ago. Now It Carries The Premium Over Westinghouse Air

The industrial giant now costs more than its faster-growing rival, forcing investors to decide if a large bet on data centers is worth the price.

In the heavy equipment industry, the industrial firm Wabtec is delivering. The rail and transit technology leader is growing revenue at a 13.4% clip, and the market values it at 26.3 times its operating profit. Then there is Caterpillar (CAT), a direct peer in the industrial space. It is growing slower, at 11.8%, yet the market charges a higher price of 33.4 times operating profit for its shares. A year ago, the positions were flipped, with Caterpillar being the cheaper of the two. The question for investors now is straightforward: what has changed to justify this reversal, and what does Caterpillar’s new premium actually buy?

The Case for Caterpillar: A Record Backlog

The case for Caterpillar’s premium valuation rests on a single, powerful growth story: the explosive demand for power from data centers. Management is betting the company’s future on it, announcing plans to increase its “large reciprocating engine capacity from 2x 2024 levels to nearly 3x 2024 levels.” Far from being a speculative build, this expansion is a response to a record $63 billion backlog, with customers committing to orders that stretch “well into 2028.”

This long-term visibility is rare and is the primary asset an investor is paying for with CAT’s higher multiple. The company is positioning itself as the essential infrastructure provider for the AI and cloud computing boom. To bolster its technological edge, Caterpillar is also making strategic acquisitions, such as its recent purchase of Skycatch, a provider of spatial data analysis for the mining industry. The argument is that this premium buys a stake in a dominant, forward-looking enterprise capturing a once-in-a-generation demand shift.

The key numbers side by side, today:

OpInc = Operating Income, P/OpInc = Price To Operating Income Ratio

And the same comparison exactly a year ago, so you can see which way the mismatch has been moving:

OpInc = Operating Income

The Case for Wabtec: Faster Growth and a Lower Price

By paying Caterpillar’s premium, an investor gives up the combination of faster growth and a lower price offered by Wabtec. The case for Wabtec goes beyond a static value play, resting on the business’s significant momentum. The company recently raised its forward guidance on both revenue and adjusted EPS, a clear signal of management’s confidence. Its latest earnings report highlighted “strong second quarter 2026 results,” confirming its operational strength.

The market has taken notice of this performance, with WAB stock returning +55.8% over the last twelve months. While Caterpillar has also performed well, the debate over its valuation is active, with valid questions about the different paths its business segments could take. For investors who prefer broad industrial exposure without concentrating their bet on a single end market like data centers, a diversified fund focused on the industrials sector offers another alternative.

A Choice Between a Data Center Bet and Strong Execution

The decision between these two industrial leaders turns on which growth story you find stronger. Paying the premium for Caterpillar is a focused bet that its large investment in powering the data center economy will create a unique and durable profit engine, justifying its current valuation. It is a vote of confidence in a specific, high-stakes strategic pivot.

Opting for the cheaper, faster-growing Wabtec is a bet on a company that is executing strongly across its own rail and transit markets right now. The key test for Caterpillar will be translating its historic backlog into tangible results. Therefore, the figure to watch is sales growth in its Power and Energy segment. How effectively the company executes its ambitious capacity expansion will ultimately determine if today’s premium was a price worth paying.

Rather Compare Them On Your Own Terms?

You can line Caterpillar and Westinghouse Air up directly on the Caterpillar peer comparison, weigh them on valuation, growth, margins, and returns, and swap in any other Construction Machinery & Heavy Transportation Equipment names you hold. Or, if you would rather not pick a side at all, an industrials ETF like XLI holds both Caterpillar and Westinghouse Air alongside the rest of the group.

Running This Test On One Pair Is Easy. Running It On Everything Is The Edge

Asking what a premium actually buys is the right question, and not just for these two stocks. Asking it across every name you own, every quarter, as the numbers move, is the part almost nobody keeps up with.

That is the work the Trefis High Quality (HQ) Portfolio systematizes: roughly 30 businesses that pass the growth-for-the-price test across thousands of candidates, sized and rebalanced with rules. It has a track record of outpacing a benchmark that combines all major indices – the S&P 500, S&P Mid-cap, and Russell 2000. Ask the question here; own the system that asks it everywhere.