Caterpillar shares have already had a strong run, and BofA Securities sees more upside ahead as the company benefits from power generation demand, a record backlog, and a broader recovery across parts of its machinery portfolio.
BofA reiterated its Buy rating on Caterpillar and raised its price objective to $989 from $930, according to a May 1 research note from the firm given to TheStreet. The new target implies about 11.1% upside from the stock’s May 1 price of $890.11, according to the note.
The firm’s case centers on a company that has already delivered stronger-than-expected results while still having other parts of the business that could add to earnings growth. BofA said Caterpillar posted a 20% adjusted earnings-per-share beat, lowered expected tariff costs, and reported a record backlog of $63 billion.
BofA also raised its earnings estimates for Caterpillar, projecting EPS of $24 in 2026, $33 in 2027, and $41 in 2028. That forecast would mark a sharp rebound from the firm’s 2025 estimate of $19.06 per share.
Power demand drives the bullish case
A major part of BofA’s bullish view comes from Caterpillar’s Power & Energy portfolio, which the firm described as being in a “sweet spot.” The bank pointed to demand tied to power generation, reciprocating engines, gas compression, pipelines, and data centers as drivers that could support the company’s next phase of growth.
Caterpillar’s exposure to power has become a bigger focus as demand for electricity infrastructure continues to rise across industrial and technology-related end markets. BofA said its channel checks suggest Caterpillar is “part of every conversation,” with power generation demand helping create incremental upside for the company.
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The firm also highlighted Caterpillar’s announced 2.1-gigawatt order for power-generation assets with PROPower as another sign that demand is still building. BofA said reciprocating engines for prime power remain a growing part of the mix, while thermal efficiency, oil and gas demand, and pipeline activity add further support.
BofA also noted that Caterpillar plans to expand large-engine capacity by about three times, compared with its prior plan for about two times. That larger capacity plan could drive more equipment sales, while also creating a larger installed base for the company’s higher-margin service business.
Services could add another layer of earnings growth
BofA’s note also places a heavy emphasis on services as a potential next leg for Caterpillar. The firm said increased capacity should drive higher output of original equipment units, which can eventually create more long-term service opportunities.
That point is important for Caterpillar’s earnings profile because services tend to be steadier and higher margin than new equipment sales. BofA said turbines do not go through dealer networks, and engines used for prime power run continuously, creating a much larger service opportunity than backup power applications.
The firm said prime power can carry about 40 times more service opportunity than backup power. As Caterpillar grows its installed base in power-related markets, BofA sees a path for services to help make the company’s earnings profile more resilient over time.
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BofA says growth is broadening
While power is the biggest theme in the note, BofA said Caterpillar’s growth story is also broadening across other areas. The firm pointed to resources, construction, and oil and gas as additional pockets of strength.
In resources, BofA said Caterpillar saw its highest order intake since 2012, supported by copper, gold, quarry, and aggregates demand. In construction, the firm highlighted pricing growth of 6.9% in the first quarter, compared with a roughly 4% decline in 2025.
The bank also said oil and gas activity remains part of the upside case, with gas and pipeline demand supporting the broader power cycle. That gives Caterpillar several growth levers at a time when BofA believes the industrial economy is still in the early stages of recovering from a multi-year downturn.
BofA said Caterpillar is only one quarter into that recovery, while some margins remain below prior levels. The firm noted that P&E margin was down 160 basis points year over year and RI margin was down 700 basis points, which suggests there is still room for improvement if demand continues to strengthen.
Risks remain in the Caterpillar outlook
BofA’s higher price objective is based on 30 times 2027 estimated EPS, which the firm said is above Caterpillar’s long-term historical range of 15 to 18 times. The bank said the higher multiple is justified by better growth visibility and a multi-year earnings recovery.
The firm still outlined several risks that could challenge the thesis. Those include worse-than-expected tariff policy, a weaker global economy, lower capital spending from mining and oil and gas customers, pricing pressure, dealer destocking, and continued weakness in dealer sales growth.
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