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    Caterpillar (CAT) Following Its Power Expansion And Dividend Raise Looks Undervalued

    Simply Wall St·08/30/2026 02:31:16
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    Caterpillar’s dividend track record meets a reshaped business mix

    Caterpillar (CAT) is back in focus after rapid growth in its power generation business, along with strong Construction Industries revenue trends and an 8% quarterly dividend increase that extended a 32 year streak of annual raises.

    The recent pullback, with the share price down about 7.5% over 90 days and 3.3% over the past week to US$800.25, follows a strong run that has pushed Caterpillar’s year to date share price return to 33.7% and 1 year total shareholder return to 92.7%. Investors appear to be reassessing shorter term expectations around data center exposed stocks, even as Caterpillar’s power generation expansion, construction revenue trends and long history of dividend growth continue to frame the longer term story.

    Spot 56 AI infrastructure stocks that, similar to Caterpillar’s power and data center exposure, are tied directly to the buildout of AI capacity and grid-scale electricity demand.

    After a near doubling in total return over the past year and a pullback from recent highs, Caterpillar now sits at US$800.25. Is it better to lean into this reset or wait for a deeper markdown on the stock?

    Most Popular Narrative: 17.5% Undervalued

    The most followed narrative currently places Caterpillar’s fair value at $970.37, which is above the recent $800.25 close and frames the stock as undervalued based on long term cash flow potential.

    Operating leverage from continued execution on cost controls, combined with expanding high-margin services/aftermarket business and future tailwinds from greater manufacturing efficiency (as capacity investments are absorbed), should drive gradual improvement in net margins and free cash flow, especially as the industry normalizes post-tariff uncertainty.

    Read the complete narrative. Read the complete narrative.

    Want to understand what is behind that higher fair value for Caterpillar? The narrative leans heavily on compounding revenue, richer margins, and a specific earnings path that has to line up for the numbers to work. Curious which assumptions in those models really move the dial on that $970.37 figure.

    Result: Fair Value of $970.37 (UNDERVALUED)

    Have a read of the narrative in full and understand what's behind the forecasts.

    However, Caterpillar’s narrative could shift quickly if expected tariffs create a sustained margin drag or if weaker equipment pricing and discounting persist in key segments.

    Find out about the key risks to this Caterpillar narrative.

    Next Steps

    Given the mix of optimism and concern around Caterpillar in this article, it makes sense to check the data yourself and move quickly to shape your own view. Start by weighing the 4 key rewards and 1 important warning sign.

    Looking for more Caterpillar sized investment ideas?

    If Caterpillar has sharpened your thinking, do not stop here. Use the Simply Wall Street Screener to surface fresh opportunities that could suit your next move.

    This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.