Should You Buy, Sell or Hold Caterpillar Stock Post Q2 Earnings?

CAT's 1-Year Performance vs Industry, Peers, Sector & S&P 500

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Before addressing how investors should position themselves in CAT stock, let’s take a closer look at the company’s quarterly performance and underlying fundamentals.

CAT Q2 Highlights: Record Sales & Backlog, Margins Improve

Caterpillar reported second-quarter 2026 sales and revenues of approximately $20.5 billion, up 24% year over year. The increase was driven primarily by a $3.1 billion improvement in sales volume across segments. Pricing contributed another $595 million, while favorable currency movements and higher Financial Products revenues provided additional support. 

Sales increased across all three primary operating segments and every geographic region. The order backlog surged 92% year over year to a record $72 billion, highlighting strong demand visibility.

Cost of sales rose 18% year over year, reflecting higher manufacturing expenses, including tariff-related costs. SG&A and R&D expenses increased 19% and 12%, respectively. However, adjusted operating margin expanded to 21.9% from 17.4% in the year-ago quarter, as higher volumes and pricing more than offset cost pressures.

Operating cash flow was around $5.7 billion, up 94% year over year, while free cash flow more than doubled to $5.1 billion. Caterpillar ended the quarter with cash and equivalents of around $6.7 billion.

Caterpillar Raises 2026 Revenue Outlook

Caterpillar now expects 2026 sales and revenues to increase in the mid-to-high teens, up from its previous low-double-digit growth forecast. The revised outlook reflects healthy demand across all three primary segments.

The company stated that 59% of its $72 billion backlog is expected to be delivered over the next 12 months. The ratio has remained relatively stable over the past three quarters, underscoring continued demand momentum.

Adjusted operating margin is projected near the bottom of its target range, excluding tariff recoveries. Caterpillar maintains its adjusted operating margins of 15–19% at revenue levels of around $60 billion. If revenues reach $72 billion, operating margins are expected to be 18–22%, while revenues of $100 billion could support margins in the range of 21–25%. This is shown in the chart below.

Image Source: Caterpillar Inc.

Full-year Machinery, Power & Energy (MP&E) free cash flow is expected to land in the upper half of the company’s $6-$15 billion target range.

CAT’s Earnings Estimates Trend Higher

Following the upbeat earnings, analysts have raised earnings estimates for CAT for both 2026 and 2027 over the past seven days. Over the course of the past 60 days, the estimate for 2026 has moved up 6.5% while the same for 2027 has moved up 4.7%.

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for 2026 currently projects earnings growth of 38%, followed by 21.8% growth in 2027. The upward revisions indicate improving confidence in CAT’s earnings trajectory.

Image Source: Zacks Investment Research

How did Caterpillar’s Peers Fare in the Quarter?

Komatsu reported earnings per share of 67 cents for the quarter ended June 30, 2026, surpassing the Zacks Consensus Estimate of 59 cents. However, earnings declined 3% year over year. Revenues rose 4% to approximately $6.54 billion. Construction, Mining & Utility Equipment sales increased 14.4%, while Industrial Machinery & Others sales rose 21.7%.

Terex reported second-quarter EPS of $1.37, topping the Zacks Consensus Estimate of $1.25 but declining 8% year over year. Revenues jumped 51% to $2.24 billion, exceeding the consensus estimate of $2.14 billion.

Astec reported adjusted EPS of 94 cents, up 4.4% year over year but 10.5% below the Zacks Consensus Estimate of $1.05. Revenues increased 23.6% to $408.1 million.

Caterpillar Trades at a Premium Valuation

CAT is currently trading at a forward 12-month P/E of 28.11X, above the industry average of 26.55X. Meanwhile, Komatsu, Terex and Astec are cheaper options, trading at a forward 12-month P/E of 16.89X, 11.95X and 11.78X, respectively.

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Caterpillar Positions for Long-Term Growth

Caterpillar is positioned to benefit from several long-term growth drivers, including U.S. infrastructure spending, mining demand tied to the energy transition, automation, data center construction and power generation.

To capitalize on rising power-generation and oil-and-gas demand, CAT will restart production of its 10-megawatt gas engine platform, which was discontinued in 2022. It plans to bring about 1.5 gigawatts of capacity back online, with shipments to begin in the fourth quarter. It is also expanding turbine capacity and has repurposed a 250,000-square-foot facility in Wamego, KS. It is currently shipping PGM130 from the facility, a product that is popular for data center power generation.  Caterpillar has agreed to supply PROPWR with up to 2.1 gigawatts of large gas generator sets for data centers, oil and gas and industrial applications over the next five years. This marks the company’s sixth agreement involving at least one gigawatt of equipment for prime-power applications.

In the second quarter, the Construction Industries segment delivered first units to Major Projects, a specialized fully CAT dealer-owned rental joint venture focused on supporting customers with multibillion-dollar projects across North America. Major Projects is expected to help expand Caterpillar’s presence in the rental industry.

In July, Caterpillar acquired Skycatch, a provider of spatial data capture, processing and analytics solutions for the mining industry. The deal follows its February 2026 acquisition of Australian mining software company RPMGlobal. Integrating Skycatch’s technology with RPM and CAT MineStar is expected to improve mining safety, productivity and operational predictability.

Caterpillar is simultaneously investing in services, e-commerce, sustainability, electrification and other digital initiatives. It expects service revenues to increase from $24 billion in 2025 to $30 billion by 2030, providing an additional source of recurring, higher-margin growth. 

Is CAT Stock a Buy After Q2 Earnings?

Record quarterly sales, a $72 billion backlog, expanding margins, robust cash flow and higher earnings estimates provide strong visibility into future performance. The company is also benefiting from several structural growth opportunities spanning infrastructure, mining, data centers, power generation and services.

Overall, the strong operating momentum and favorable long-term demand outlook outweigh the valuation risk at this stage. The recent upward revisions to earnings estimates further support the bullish case. Caterpillar currently sports a Zacks Rank #1 (Strong Buy), which supports our thesis. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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