Caterpillar Stock Looks Expensive Until You Price The Backlog, And Then The Margins

Caterpillar (CAT) has nearly doubled over the past year, and it trades near $820 a share, about 36 times its last twelve months of adjusted earnings. That is normalized net income with stock-based compensation added back, meant to sit closer to the basis analysts use than a GAAP figure would, though the two are not defined identically. The multiple is steep for a maker of construction equipment and engines. It reads differently against the earnings analysts expect.

Why Caterpillar Looks Expensive On What It Has Already Earned

The run is most of the answer. The S&P 500 returned about 19% over the same twelve months, so Caterpillar ran far ahead of the market, and moves of that size price the earnings before they arrive.

Yet the market has taken some back. Caterpillar trades about 23% below its 52-week high and is down 8.6% over the past three months. So the question is live.

But Analysts Think The Earnings Are Coming

On what analysts expect Caterpillar to earn in fiscal 2026, today’s price is about 29.9 times earnings. On the 2027 estimates, that same price is about 25.7 times earnings, implying earnings grow about 18.4% a year (or roughly 40% cumulatively) from trailing levels.

An order book sits behind Caterpillar’s own outlook. Backlog reached $72 billion in the June quarter, and management expects to deliver 59% of it within twelve months. Some Power and Energy customers are placing orders as far out as 2030.

Power generation demand is for large gensets and turbines used in data center applications. Caterpillar is restarting a large gas reciprocating engine platform it discontinued in 2022. In parallel, it converted a facility in Wamego, Kansas, in under 12 months to package and ship its PGM130 gas turbine modules.

So Caterpillar Has To Widen Margins While It Pays To Grow

Consensus has earnings growing about 18.4% a year from the trailing twelve months to 2027, and revenue growing about 11.8% a year over the same span. Earnings growing that far ahead of revenue means the market is assuming margins keep expanding. That assumption is the fragile part.

Revenue grew 18.4% over the trailing twelve months, so consensus wants slower sales than Caterpillar just delivered, and more profit from each dollar. The operating margin over the same twelve months was 17.5%, below its own three-year average of 18.7%.

Management’s guidance points in the same direction. It expects full-year 2026 adjusted operating margin to top last year’s result and exceed its prior guide. Excluding the tariff recoveries booked in the June quarter, however, underlying margins land near the bottom of its target framework for that higher sales tier. Tariff costs, depreciation on the new capacity and spending behind its 2030 goals arrive together.

The second year is not settled either. The 19 analysts covering it put 2027 earnings anywhere from $30.38 to $35.61 a share. So the multiple on 2027 earnings is a forecast with a condition: margin has to widen while Caterpillar pays to build the capacity that creates the growth. Whether you believe that is the whole decision.

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