Caterpillar (CAT): fair value

Fair-value band

The normal range for this name runs from $189 (cheap) to $530 (expensive); it is now priced at $726.

Is Caterpillar undervalued?

Expensive. Caterpillar trades at $726, 102% above the fair value this model estimates; the normal range for this name runs from $189 (cheap) to $530 (expensive).

Diligence checklist

7 pass · 2 fail · 2 no data

• PASSCash actually collected from profit, last 12 months: 122%XBRL · Caterpillar gets $1.22 of real cash for every $1 of reported profit which means profits are real and not just numbers on paper. That's a good sign.
• PASSGap between paper profit and real cash: -2.8%XBRL · Caterpillar's "profit on paper" and "cash in the bank" gap is small enough to pass.
• PASSDebt compared to one year of cash earnings: 1.81xXBRL · It would take 1.81 years of earnings to clear what Caterpillar owes, net of the cash it holds. My limit for a name I would buy is three years, so this passes, though the balance sheet is doing more of the work than it does at the top of this list.
• PASSHow much more it earns on capital than that capital costs: +6.46ppXBRL · Caterpillar earns 6.5 points more on the capital it employs than that capital costs. The gap is real but not wide, so growth here creates value at a modest rate rather than compounding it. The gap is wider than it was at the start of the window.
• FAILStock sold by executives and directors on the open market, last 6 months: $113.9MEDGAR (dealbreaker) · Creed Joseph E sold $26.2M of stock in the last 6 months, outside any pre-planned selling schedule, and $113.9M went out that way in total. My rulebook says more than $5 million of this kind of selling is disqualifying for a "long" position (buying the stock). The full list of open-market sellers: Creed Joseph E $26.2M, Fassino Anthony D. $23.4M, De Lange Bob $22.4M. Options being exercised, and shares held back to cover the tax on them, are not sales and I don't count them either. filing ↗
• FAILHow long the CEO has run this company: 1.4 yearsTEXT · Caterpillar's chief executive took the job on May 1, 2025, 1.4 years ago. I want a full cycle at the company, which I take as 5 years, before a management record tells me anything: a short run has not yet been tested by a bad year. filing ↗
• PASSProfit margin held up during the last sales slump: 36.3% vs 36.2% baseXBRL · The last time Caterpillar's revenue fell, its profit margin per unit sold only slipped a little, from about 36.2% to 36.3%. It means Caterpillar isn't being forced to cut prices to keep product moving, which is what a company with a weak competitive position has to do. This is the accounts talking, not the filing: I'm reading the 3 quarters from December 2024 to June 2025, measured against the year going into it, and a shift in what the company sold can imitate pricing power either way.
• PASSNormal profit margin across a full business cycle: FCF margin 14.3% vs 14.0% medianXBRL · Caterpillar's current cash margin (14.3%) is a bit above its long-run average (14.0%). This is a mild warning rather than a problem: don't assume today's good margin lasts forever. My valuation grows the long-run average, not the temporarily high figure. Across the window the margin ran between 8.2% in June 2022 and 17.4% in March 2024.
• N/AHow much of the stock trades on an average day: $1,976MMARKET · Caterpillar trades so much volume that this basically isn't a concern. There's no pass or fail here because the answer depends on how big a position I'd actually want to take.
• N/AShare of revenue from its single biggest customer: not establishedTEXT · I fetched and read Caterpillar's February 13, 2026 10-K but found no sentence about customer concentration. That isn't the same as the filing saying there is none: it may simply be worded in a way my search doesn't catch. Read Item 1 and the concentration-of-risk note yourself before trusting this row. filing ↗
• PASSWhether the company switched auditors in the last 2 years: noneEDGAR · Companies sometimes switch accounting auditors right before something bad is uncovered which can be a warning sign. Caterpillar hasn't changed auditors in the last 2 years, so there's no such red flag here.