An analyst from Bank of America Securities has expressed a preference for Caterpillar over Deere, anticipating a rebound in machinery markets from their current low points. This recommendation is supported by Caterpillar's recent strong financial performance and the underlying strength observed in the construction sector, despite some pricing pressures. The analyst's outlook suggests a favorable environment for Caterpillar as the industry navigates its trough, positioning the company for potential growth.
Bank of America Securities analyst Michael Feniger has reaffirmed his "Buy" rating for Caterpillar, Inc. (NYSE: CAT), setting a price target of $650. This positive stance is primarily driven by Caterpillar's strong third-quarter 2025 results, which surpassed market predictions, demonstrating robust demand across its key business segments. The company reported a 10% increase in sales and revenues year-over-year, reaching $17.64 billion, outperforming analyst estimates of $16.77 billion. Adjusted earnings per share also exceeded expectations at $4.95 against a $4.52 estimate. Feniger’s assessment emphasizes Caterpillar’s resilience and strategic positioning in the heavy machinery market, making it a preferred choice over its competitor, Deere & Company (NYSE: DE).
Caterpillar Outpaces Deere Amid Market Trough
Bank of America Securities analyst Michael Feniger advocates for Caterpillar (CAT) over Deere (DE), anticipating a recovery in machinery markets from their lowest points. Despite some bearish sentiment regarding Caterpillar's construction pricing, Feniger points to Deere's optimistic forecast for construction & forestry pricing, indicating a potential market stabilization. He highlights the impact of underproduction combined with strong retail sales, particularly in North American earthmoving equipment, where inventories remain significantly low. This suggests a strong underlying demand that could drive a recovery in the sector.
Feniger's recommendation for Caterpillar over Deere is rooted in a detailed analysis of both companies' recent performances and market valuations. While Deere reported strong earnings per share of $3.93 and an 11% year-over-year increase in sales, beating consensus estimates, its fiscal 2026 net income forecast implies a year-over-year decline. In contrast, Caterpillar's third-quarter results demonstrated robust demand, with sales and revenues climbing to $17.64 billion and adjusted earnings per share hitting $4.95, both exceeding expectations. Feniger acknowledges that Caterpillar's valuation might appear high compared to its historical range. However, he argues that the current trough levels in mining and construction machinery markets justify a recovery multiple, making Caterpillar an attractive investment. The analyst also notes the tight North American earthmoving equipment inventories for Deere, suggesting a favorable environment for both companies, but ultimately favoring Caterpillar for its current market positioning and recovery potential.
Strategic Positioning and Market Dynamics
Caterpillar's strategic advantage is evident as it navigates the current market landscape, with machinery markets nearing their cyclical lows. The company's ability to maintain strong demand and exceed financial expectations, even as competitors face fluctuating forecasts, underscores its robust operational discipline. This resilience, combined with the anticipation of an industry-wide recovery, positions Caterpillar favorably for future growth. The analyst's confidence in Caterpillar is further bolstered by the observed strength in the construction sector, indicating a foundation for sustained performance.
The current market environment for heavy machinery is characterized by a mix of challenges and opportunities. While concerns about weakening construction pricing for Caterpillar have been noted, the broader market dynamics suggest a turning point. Deere's guidance for a 3% increase in construction & forestry pricing for fiscal year 2026, alongside an expected 10% sales growth in the segment, provides an optimistic signal. This growth, particularly in earthmoving equipment, is supported by tight inventory levels in North America, with a significant 35% deficit. These factors collectively suggest that while the market is at a trough, underlying demand and strategic pricing adjustments are setting the stage for a rebound. Feniger's analysis emphasizes that despite Caterpillar's valuation, its exposure to markets currently at their lowest points offers substantial upside potential as the industry transitions into a recovery phase, making it a compelling investment choice over Deere.
