Caterpillar's Energy, Transportation Unit Will Power Next Growth Wave: Analyst

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BofA Securities analyst Michael Feniger maintained a Buy Rating on Caterpillar, Inc. (NYSE: CAT) on Monday, with a price target of $385.

Caterpillar's Energy & Transportation (E&T) segment contributes about 40% of sales to overall to the company, Feniger noted.

Given its diverse portfolio, it's also the least-understood segment within Caterpillar, he added.

Caterpillar's E&T segment is expected to drive the company's next earnings upcycle, supported by long-term growth in data centers, power generation, and pipeline expansions through 2030.

E&T is helping stabilize earnings during the current industrial downturn and could boost EPS as investments ramp up, the analyst explained. In addition:

  • Caterpillar's 2009-2012 EPS upcycle ($2.18 to $9.35) was underpinned by Resource Industries due to a mining capex upcycle (Resource Industries ~50% of operating profit in 2012 versus 25% in 2008).
  • A big contributor to the 2020-23 EPS upcycle is Construction Industries (operating margin 25% in 2023 vs 14% in 2020).
  • On an operating profit level, E&T contributes 40% compared to just 33% two years ago, as cyclical pressures (de-stocking, higher rates, capex discipline) weigh on Construction and Resources.
  • E&T pricing remains positive (versus core is negative) & verticals within E&T (Power Gen) continue to outgrow the overall business.
  • Management is spending capex for the first time in a decade to build out large engine capacity to meet rising power gen and data center growth.
CAT is guiding $2.5 billion in 2025, a notable step up from the range over the last decade ($1.2 billion average). This is an actual inflection. Caterpillar's management team under the prior CEO, Jim Umpleby (2017-2025), remained focused on improving returns and FCF generation, Feniger noted.

Since 2017, capex to sales and capex to depreciation has averaged 2% and 70%, respectively. The step-up in capex is well above these ranges. It continues under new CEO Joseph Creed, the analyst added.

CAT Price Action: Caterpillar shares are up 1.65% at $362.93 at publication on Monday.

Feniger projects 2025 revenue of $59.3 billion and earnings per share of $17.50.