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Investing.com -- Evercore ISI upgraded Caterpillar (NYSE:CAT) to Outperform from In Line, adding the heavy machinery maker into its top five stock picks after stronger-than-expected margins and expected pricing resilience heading into 2025.
The firm said Caterpillar’s construction equipment margins have held up despite pressure from lower pricing this year, underscoring strong leverage from volume and geographic mix, particularly in North America.
With inventory destocking nearing its end in that region and early signs of reduced discounting in the channel, Evercore sees earnings per share upside emerging later in 2025 and into 2026.
Investor interest in Caterpillar has largely been driven by its power generation and data center exposure, but additional upside on the machine side could widen the stock’s appeal, the note said.
An upcoming analyst day on Nov. 4, shortly after Caterpillar reports earnings on Oct. 29, could provide more long-term financial targets, something the brokerage sees as an incremental positive since the company has historically given limited disclosure.
One lingering concern noted by Evercore is the lack of visibility around Caterpillar’s warranty accounting and disclosure.
Analyst pointed out that new warranty liabilities may have provided roughly $0.54 in EPS benefit this year, which management said was not a material driver, though the company does not fully break out that metric like many peers do.
Though Evercore says that "frustration" is outweighed by improving fundamentals and the possibility of renewed pricing power, prompting the upgrade.
It also removed PACCAR (NASDAQ:PCAR) from its top five list to make room for CAT.