Should You Buy, Sell or Hold Caterpillar Stock Post Q4 Earnings?

Core Insights - Caterpillar Inc. (CAT) achieved record revenues in Q4 2025, driven by higher volumes across all segments, marking a return to positive earnings growth after five consecutive quarters of declines [1][5][9] Financial Performance - Q4 2025 revenues reached approximately $19.1 billion, an 18% increase year-over-year, with a backlog of $51.2 billion, up $11.3 billion sequentially [8][10] - Adjusted operating profit decreased by 9% to $2.66 billion, with adjusted operating margin narrowing to 15.6% from 18.3% in Q4 2024 due to rising costs from tariffs [9][11] - Earnings per share for Q4 stood at $5.16, a slight increase of 0.4% from the previous year [9] Market Performance - Over the past year, CAT stock has increased by 86%, outperforming the industry growth of 84.1% and the S&P 500's rise of 15.6% [2] - CAT has outperformed peers such as Komatsu and Terex, which saw stock gains of 52.5% and 36.9%, respectively [3] 2026 Outlook - For 2026, CAT anticipates revenue growth near the upper end of its long-term target of 5-7% CAGR, while adjusted operating margins are expected to remain at the lower end due to ongoing tariff pressures [11][12] - The company projects adjusted operating margins of 15-19% at revenue levels around $60 billion, with potential for higher margins at increased revenue levels [12] Earnings Estimates - Earnings estimates for CAT have been revised upward for both 2026 and 2027, indicating a projected year-over-year earnings growth of 18.5% for 2026 and 21.8% for 2027 [15][17] Long-Term Growth Targets - Caterpillar aims for a revenue growth CAGR of 5-7% through 2030, with free cash flow projected between $6 billion and $15 billion [23] - The company plans to return most of its free cash flow to shareholders and grow its dividend at a high-single-digit rate following a 7% increase in 2025 [25] Strategic Initiatives - Operational targets include increasing sales in Construction Industries, expanding the use of autonomous trucks, and enhancing Power Generation sales [26] - The long-term outlook is supported by rising U.S. infrastructure spending, demand for mining equipment, and growth in the high-margin aftermarket business [27]