Caterpillar Inc. (CAT Quick QuoteCAT - Free Report) shares have gained 94.5% in the past year, outperforming the manufacturing - construction and mining industry's 78.7% growth. In comparison, both the Zacks Industrial Products sector and the S&P 500 have advanced 19.5%.

CAT has also delivered stronger returns than competitors, Komatsu (KMTUY Quick QuoteKMTUY - Free Report) and Terex Corp. (TEX Quick QuoteTEX - Free Report) , whose shares have risen 35.5% and 23.5%, respectively, during the same period.

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While the impressive rally may attract investors, it is important to assess the drivers behind the stock’s performance and determine whether the momentum is sustainable or if potential risks could weigh on future returns.

CAT Ends Q2 With Record Backlog, Revenues Boosted by Demand

Caterpillar generated $20.5 billion in second-quarter 2026 revenues, representing a 24% year-over-year increase. Growth was largely fueled by a $3.1 billion rise in sales volume across its business segments. Sales increased across all three primary operating segments and every geographic region. Sales exceeded the $20 billion mark for the first time in the company’s history.

Caterpillar ended the second quarter of 2026 with a record backlog of $72 billion, 92% higher than last year. Backlog increased across all three segments, reflecting broad-based demand strength throughout the company’s portfolio. 
Around 59% of this backlog is expected to be delivered over the next 12 months. This percentage has remained relatively stable over the past three quarters, highlighting the strength and consistency of demand.

Caterpillar Demonstrates Earnings Momentum

Cost of sales climbed 18% year over year due to higher manufacturing expenses, including tariff-related impacts. Selling, general and administrative expenses, and research and development expenses increased 19% and 12%, respectively. Despite higher expenses, adjusted operating margin expanded to 21.9% from 17.4% in the year-ago quarter, as higher volumes and pricing more than offset these pressures. Caterpillar reported adjusted earnings of $8.17 per share for the second quarter of 2026, up 73% year over year. 

CAT 2026 Revenue Outlook Raised, Margin Pressure Remains

Caterpillar expects 2026 sales and revenues to increase in the mid-to-high teens, up from its previous low-double-digit growth forecast. The revised outlook reflects healthy demand across all three primary segments.

Adjusted operating margin is projected near the bottom of its target range, excluding tariff recoveries. Caterpillar maintains adjusted operating margin outlook of 15–19% at revenue levels of around $60 billion. If revenues reach $72 billion, operating margins are expected to be 18–22%, while revenues of $100 billion could support margins in the range of 21–25%. 

Full-year Machinery, Power & Energy (MP&E) free cash flow is expected to land in the upper half of the company’s $6-$15 billion target range.

Caterpillar’s Earnings Estimates Continue Moving Higher

Earnings estimates for CAT have moved up for both 2026 and 2027 over the past 60 days.

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The Zacks Consensus Estimate for 2026 points to year-over-year earnings growth of 43.4%, while the 2027 estimate implies growth of 20.3%, reflecting improving confidence in the company’s earnings trajectory.

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CAT Trades at a Premium Valuation

CAT is currently trading at a forward 12-month P/E of 26.13X, a premium compared with the industry’s 24.45X.

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Meanwhile, Komatsu and Terex are cheaper options, trading at a forward 12-month P/E of 17.38X and 11.26X, respectively.

Caterpillar Continues to Deliver Superior Returns

Caterpillar’s return on equity (ROE) is 55.53%, higher than the industry’s average of 53.33%. It is also higher than the S&P 500’s return of 38.46%. Meanwhile, Komatsu offers an ROE of 10.51% and Terex an ROE of 12.24%.

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CAT Positioned for Long-Term Growth

Caterpillar is positioned to benefit from several secular growth trends, including U.S. infrastructure spending, mining demand related to the energy transition, automation adoption, data center expansion and sustainability investments.

To capitalize on rising power-generation and oil-and-gas demand, CAT will restart production of its 10-megawatt gas engine platform, which was discontinued in 2022. It plans to bring about 1.5 gigawatts of capacity back online, with shipments to begin in the fourth quarter. It is also expanding turbine capacity and has repurposed a 250,000-square-foot facility in Wamego, KS. CAT is simultaneously investing in services, e-commerce, sustainability, electrification and other digital initiatives. It expects service revenues to increase from $24 billion in 2025 to $30 billion by 2030, providing an additional source of recurring, higher-margin growth. 

How Should Investors Approach CAT Stock Now?

Caterpillar continues to demonstrate strong execution, supported by robust revenue and earnings growth, a record backlog and upward revisions to earnings estimates. Its broad-based demand strength across segments, coupled with exposure to favorable long-term trends such as infrastructure development, electrification-driven mining activity, data center expansion and rising power demand, provides a solid foundation for continued growth.

The company is also strengthening its higher-margin services business, which should support more resilient and recurring revenue growth over the long term. While CAT's premium valuation warrants some caution following its sharp stock-price rally, its strong fundamentals, improving earnings outlook and significant growth opportunities make the stock an attractive choice for investors. Caterpillar currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.