Caterpillar is Set to Report Q4 Earnings: Buy, Sell or Hold the Stock?

Core Viewpoint - Caterpillar Inc. is expected to report a year-over-year decline in earnings despite an increase in revenues for the fourth quarter of 2025, marking the sixth consecutive quarter of earnings decline [1][2]. Revenue and Earnings Estimates - The Zacks Consensus Estimate for Caterpillar's fourth-quarter 2025 earnings is $4.67 per share, reflecting a 9.1% decline from the previous year [1][2]. - Revenue for the quarter is projected at $17.9 billion, indicating a 10.4% year-over-year growth [2]. Earnings Surprise History - Caterpillar's earnings have surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average surprise of 2.12% [3]. Earnings Prediction Model - The current Earnings ESP for Caterpillar is -2.86%, indicating that the model does not predict an earnings beat this time [5]. - The company holds a Zacks Rank of 3 (Hold) [6]. Factors Influencing Q4 Performance - The manufacturing sector has been in contraction, with the Institute for Supply Management's manufacturing index below 50% for several months, impacting order volumes [7][8]. - Caterpillar's backlog stands at $37.5 billion, which, along with higher aftermarket parts and service revenues, is expected to support sales [8]. - Volume gains are anticipated across all segments, but operating margin is projected to decline to 13.2% [7][10]. Segment Performance Projections - Resource Industries segment expected external sales of $2.87 billion, a slight increase of 0.1% year-over-year, with an operating profit projected at $499 million [11][12]. - Construction Industries segment projected external sales of $6.72 billion, a 6.4% increase, with an operating profit of $1.39 billion [13][14]. - Energy and Transportation segment expected external sales of $7.06 billion, an 8.4% rise, with an operating profit of $1.57 billion [15][16]. Price Performance and Valuation - Caterpillar's stock has increased by 62.9% over the past year, outperforming its industry and the broader market [17][19]. - The stock is currently trading at a forward P/E of 27.84X, higher than the industry average of 25.29X and competitors like Terex, Astec, and Komatsu [22]. Investment Thesis - Long-term demand for Caterpillar is supported by increased infrastructure spending and a shift toward clean energy, with a strong market presence and diverse portfolio [23]. - The company is focusing on expanding service revenues and maintaining a strong balance sheet for growth investments [23]. Market Outlook - Despite anticipated earnings decline, the upcoming quarterly results are expected to reflect improved volumes across all segments [24]. - Current investors are advised to retain shares, while new investors may consider waiting for a better entry point due to premium valuation [25].