Caterpillar raised at Baird as ’fundamentals stabilizing’

Investing.com -- Baird upgraded Caterpillar (NYSE: CAT) to Outperform with a $395 price target on Tuesday, pointing to improving fundamentals, easing trade tensions, and signs of a potential earnings recovery beginning in late 2025.

“[The] fundamental setup for CAT is improving as 2025 is likely to mark a near-term EPS trough,” Baird analysts wrote, noting that despite an expected 18% earnings decline this year, conditions are emerging for a rebound in 2026 and beyond.

Baird highlighted that CAT’s first-quarter results showed “much better-than-expected orders/backlog” and a stabilization in dealer retail sales.

They added that order intake in the quarter rose 20% with a book-to-bill ratio of 1.37x. Baird said that while Energy&Transportation is a key growth driver, “sequential backlog increases were noted in CI and RI as well.”

Dealer inventory levels, which have weighed on production in recent quarters, are also said to be shifting.

Baird said the lowest seasonal build in over a decade during the first quarter, with inventories now “lower in real terms” and expected to flip to a “revenue/production tailwind” starting in the fourth quarter of 2025.

Trade de-escalation with China is said to improve the outlook further. “CAT sized tariff impacts at $250–350 million per quarter... De-escalation with China lowers the cost drag,” Baird wrote.

This shift is expected to limit margin compression and potentially act as a demand catalyst as business visibility improves.

The firm added that Caterpillar has underperformed the S&P 500 by approximately 15% over the past year but sees scope for the stock to catch up as “easing of tariff impacts adds weight to 2025 as a trough EPS year” and supports valuation expansion.

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