CAT Research Note: The business has moved up a level, the price has moved further

The CAT research family (page counts are those of the approved PDF editions, which this site does not host):

• Deep Dive: A great franchise priced beyond its modeled economics (44 pages). Public preview; the Deep Dive page says how to read the full report.
• Research Note: The business has moved up a level, the price has moved further (6 pages).
• Technical Appendix: How the valuation was built and tested (20 pages).
• Learning Companion: How to read the Caterpillar research (10 pages).

---

Blockhaven Research Note · rated at the 11-02-2026 close · price as of 11-09-2026 · evidence through 11-09-2026

The decision

• Blockhaven Rating: 1/5 POOR at $613.62 (11-02-2026 close), against intrinsic value at the 11-02-2026 valuation date, from an explicit forecast to the ninth forecast year with a terminal value; not a forecast of twelve-month price performance
• Thesis: The business has moved up a level; the price has moved further
• Near-term business outlook: Strong order book and margins, with dealer destocking flagged for the fourth quarter

Caterpillar's earnings power has stepped up, led by Power & Energy, where the third-quarter segment margin reached 24.4%, and the group's last-twelve-month MP&E margin is 18.85%. We think the shares are priced for more than that. At the 11-02-2026 close of $613.62 they were 31.7% above the upside case in our model ($466.04), and our reference value of $346.89, which we treat as our central estimate of current economics, is 43.5% below that close. Three things should be kept apart. The model computes intrinsic value at the 11-02-2026 valuation date; the rating is our judgment of the price against that value and the evidence; and how the shares perform over the next twelve months is not something this research forecasts, any more than how long the gap would take to close, if it does. The rating is of the price, not of the quality of the company, and it would change if the price did.

Since the valuation date

Our values are those of 11-02-2026 and have not been rolled forward. Caterpillar closed at $598.88 on 11-09-2026, the latest settled close, 2.4% below the $613.62 valuation close (it had been $558.63 on 11-06-2026), so the upside is 22.2% below the price, the reference 42.1% below and the downside 64.4% below; the price is still above each of our three paths. The last Treasury row we gathered, dated 11-06-2026, put the 10-year yield at 4.86% against 4.91% on the valuation date. The upside under the most favorable of the joint sets we ran, $570.61, is 4.72% below the 11-09-2026 settled close (it was above the 11-06-2026 close), and stacking every favorable end we tested at once gives the upside $676.06, above the 11-02-2026 close and the 11-09-2026 close as well; each is a sensitivity and not one of our three paths. The 11-09-2026 settled close is the only new observation in this edition. The third-quarter Form 10-Q, filed on 11-04-2026, agrees with the headline figures we compared from the earnings release, reports no material change to the risk factors and gives the terms of Fabick, a dealer Caterpillar acquired on 10-31-2026 for $1.24 billion in cash at closing and an estimated $165 million to follow. We tested three dated illustrations for it, for the reported share count and for the contract liabilities. Each is hypothetical and small beside the gaps above, from 0.45% to 2.1% of the reference, and none of them, as tested, changes our reading. They are not additive and they do not bound the full effect of an acquisition the model does not include. The Deep Dive sets them out.

The evidence that decides it

Cash generation and capital return are real: MP&E free cash flow was $13.2 billion over the last twelve months, the company paid $9.89 billion to shareholders in nine months, and the diluted share count is down 10.3% since FY2023. But three things limit how much of the current run rate we capitalize. The consolidated operating margin has a median of 10.95% across 19 fiscal years and reached 19% in only 2 of them; that series includes Financial Products and is not an MP&E margin, but it is the only long record we have. The latest twelve months include $520 million of tariff recoveries, without which the MP&E margin is 18.14%. And management attributes part of the machinery growth to dealer inventory changes, which reverse.

What the longer record and the competitors add

Eight years of consolidated history show a cycle that took revenue down 22.4% in FY2020 and a margin that bottomed at 10.91% that year, against 1.78% in FY2009 and 1.29% in FY2016. That higher floor is the main evidence in the record that the company has changed, and the reason we do not apply the long median. Per-share growth owes as much to margin and to buying shares as to sales: from FY2018 to FY2025 diluted shares fell 21.20% and revenue rose 23.51%. The company's own price bridge shows price realization taking away $817 million in FY2025 and adding $663 million in the third quarter of 2026 alone, which is why we cannot tell scarcity pricing from tariff pass-through. Cummins grew power generation sales 34.50% in six months and GE Vernova recorded a $19.5 billion inflow from contract liabilities and deferred income, which its filing ties to down payments and slot reservations at Power and down payments at Electrification, so the demand is real. That rivals will add capacity to meet it is our inference, since deposits show orders and not plant.

What the forecast has to believe

The reference grows Power & Energy 14% in year one and fades its margin from 22.5% to 20%. It shrinks Construction Industries for two years while Resource Industries is flat to slightly up, growing 2% and then not at all; it eases Construction's margin from 19.5% to 19%, below the 20.85% of the last twelve months, and assumes that Resource Industries' margin recovers from 13.95% over the last twelve months to 16%, a reversal the record does not yet show; both segments stay below their FY2023 and FY2024 margins throughout. The path ends year nine at a Machinery, Power & Energy margin of 18.14%. The independent review challenged eight assumptions and disagreed materially on two, the through-cycle margin, where a margin at the FY2018 to FY2025 mean lowered the reference by $60.78 on the earlier model the review measured and lowers it by $52.33 on the current one, and the depth of the downside's trough. We responded by showing the long-record reading as a stress and by adding a deep-trough and a no-recovery stress.

Valuation context

We value MP&E with a nine-year cash-flow model and Financial Products at book value times what its return earns above its cost, discounted at 10.27%, built on the 4.91% Treasury yield of the price date plus an equity risk premium of 5% and a beta of 1.1 that are our own assumptions. The three conditional paths are unweighted: $213.44 for the downside, $346.89 for the reference and $466.04 for the upside. Moving the discount rate by a point in either direction gives $307.24 to $399.19 on the reference, half a point on the premium gives $322.75 to $374.87, the most favorable of the joint sets we ran gives $424.36, and every favorable end we tested applied at once gives $517.55. Holding the rest fixed, the model matches the price when the reference is discounted at 7.01% or has every segment margin 12.22 points higher, both well outside the ranges we tested; the upside matches it at 8.5%. Two stresses sit below the downside and are hypotheticals, not forecasts: a deep trough whose margins and growth recover but whose ninth-year sales stay 15.90% below the downside's is worth $175.00, and a trough with no recovery within the forecast $105.52. With the margin set to the FY2018 to FY2025 average, the reference's growth is worth $294.56.

Where we are least sure

The October decline took the shares 28.9% lower in four weeks, and we do not know why: no document we gathered explains it, and we have not tuned any assumption to it. The equity premium and beta behind the discount rate are our judgments. We did not obtain the third-quarter call or any outside estimate, and we did not rerun the model on the third-quarter Form 10-Q.

The strongest counterargument

The power backlog is large, competitors confirm the demand, the shares were already 42.4% below their high at the 11-02-2026 close, and a lower discount rate than ours would carry the upside to the price. We agree the upside case is not far-fetched. It is also the case in which power margins stay at their third-quarter level for most of a decade and the machinery cycle does not turn, and we think the price already asks for that. The bear case is as demanding in the other direction: it needs a peak margin to revert and no recovery to follow, and the no-recovery stress, $105.52, is not a forecast. The review's own counter-thesis reached an upside above the price only with a lower discount rate, Power & Energy margins higher by 1.5% of sales, mid-year terminal discounting and a lighter working-capital charge together, and it could not reach the price on the reference. Our own stack of every favorable end we tested does the same on the current model: it lifts the upside to $676.06, 10.18% above the 11-02-2026 close, by assuming a ninth-year MP&E margin above any in our record together with a lower rate and faster terminal growth, and it leaves the reference at $517.55, 15.66% below that close. That is why we rate 1/5 and not 2/5, and it is a judgment about how much a price should ask of a favorable case.

What would change our view

Evidence that Power & Energy margins stay at their third-quarter level as capacity is added; machinery margins staying near their FY2023 and FY2024 level through a destocking quarter; evidence for a lower equity premium or beta, which would lower our discount rate materially; a primary-source explanation of the October decline; or a materially lower price. The company has scheduled its next results for 02-02-2027, 04-29-2027, 07-29-2027 and 10-28-2027, and the Deep Dive sets out what each would tell us and which sensitivity it bears on.

Assumptions and disclosure

This note is for information and education. It is not individualized advice, and the Blockhaven Rating is Blockhaven's own assessment on its own scale, not a recommendation to trade any security. Scenarios are conditional, unweighted and not forecasts. The Deep Dive carries the full model, sources and limits.

Important disclosures

Blockhaven research is provided for general informational and educational purposes. It is not individualized investment advice and does not take into account any reader's financial circumstances, investment objectives, risk tolerance, tax situation or portfolio.

Nothing in this report is an offer or a solicitation to buy or sell a security or other financial instrument. Reading or accessing Blockhaven research does not by itself create an investment-advisory, fiduciary, brokerage or client relationship.

Investing involves risk, including the possible loss of principal. Scenario values, terminal values, valuation ranges, sensitivities and forward-looking assumptions are analytical tools, not guarantees or promises of future performance, and actual results may differ materially.

Blockhaven uses information from company filings, company publications, market-data providers and other sources it believes to be reliable, but that information may be incomplete, delayed, revised or incorrect.

Opinions, ratings and interpretations reflect Blockhaven's research judgment as of the report date and may change as new evidence becomes available.

Positions and conflicts

As of November 6, 2026, Blockhaven's owner held no shares, options, or other direct derivatives in Caterpillar Inc.; had no material positions in Caterpillar Inc. through entities the owner controls; and had no paid financial relationships with Caterpillar Inc.

© 2026 Blockhaven LLC. All rights reserved.