J.P. Morgan: Caterpillar orders hit a record; JPMorgan cuts price target but maintains long-term earnings outlook

Why did the stock fall after results were released?

Caterpillar’s third-quarter revenue rose about 17% year over year to $20.7 billion, slightly above the $20.6 billion market consensus. Adjusted earnings per share were $7.20, above the $7.10 consensus, with tariff refunds contributing $0.21.
The period-end backlog reached $78 billion, above JPMorgan’s previous estimate of $77 billion but below the $80 billion threshold cited by some bullish investors in the bank’s pre-results discussions. After the results, the stock fell about 9%, while the S&P 500 was roughly flat over the same period.
JPMorgan lowered its 2026 adjusted earnings-per-share forecast by 2.4% to $27.31 and cut its price target for December 2027 from $1100 to $1000, while maintaining its Overweight rating.

Third-quarter end-user sales in the Energy & Transportation business rose 36% year over year, including 75% growth in power generation equipment, with strong demand for gas turbines and large reciprocating engines used in data centers. Demand for prime power is rising, and momentum in diesel backup power also continues.
Capacity is the main constraint on growth in the business: some large reciprocating engine orders are booked through 2029, and gas turbine orders through 2030. The company plans to deliver the first 10-megawatt power-generation engines from restarted production in the fourth quarter of 2026 and continue ramping up in 2027.
The company will also use existing plants and employees to increase large-engine assembly and testing capacity, aiming to bring capacity to nearly three times its 2024 level by 2030. Although the backlog increased 96% year over year, about 58% is expected to be sold within the next 12 months, slightly below 59% in the previous quarter.

The company expects fourth-quarter 2026 sales to rise modestly year over year and adjusted operating margin to increase, but capacity expansion, depreciation, materials and freight will offset some gains from pricing and volume. JPMorgan calculates that the fourth-quarter revenue guidance implies more than $19.1 billion, compared with a market consensus of $21.4 billion.
Fourth-quarter construction business sales are expected to be similar to a year earlier: seasonal dealer destocking is expected to be about $1.6 billion, versus $600 million a year earlier, creating a year-over-year sales-volume headwind of about $1 billion, even though end-user sales remain strong.
The company maintained its guidance for mid-to-high double-digit full-year sales growth, but expects adjusted operating margin excluding tariff refunds to be near the lower end of its annual target range. The bank calculates this at about 19%, below the 19.4% market consensus; the company expects full-year tariff costs of about $2.2 billion.

The bank expects incremental margins to reach the low 30% range by 2030 as output increases after Energy & Transportation capacity comes online as planned, and maintains its forecast for earnings per share above $55 in 2030.
JPMorgan believes a larger share of prime power business will expand the installed equipment base and drive subsequent services growth. It also expects a near-double-digit compound annual revenue growth rate from 2019 to 2030 and an operating-margin increase of more than 7 percentage points, and therefore disagrees with valuing the company at a traditional cyclical peak.
The $1000 price target is based on a sum-of-the-parts valuation and a forward price-to-earnings multiple of about 25 times, and incorporates the possibility of gaining share in prime and backup power markets over the next 3 to 5 years. A sudden slowdown in data-center growth could make the bank’s earnings forecasts too high.