Caterpillar's E&T segment is likely a core driver to the next EPS cycle: BofA

Bank of America analysts have reiterated a Buy rating on Caterpillar (CAT), with a price target of $385, highlighting the Energy & Transportation (E&T) division as the company's primary growth driver. The E&T segment, representing approximately 40% of Caterpillar's sales, is expected to benefit from tailwinds in data centers, power generation, and gas pipelines, potentially adding $3.00-$3.50 to EPS. Renewed pipeline expansion and surging demand for backup power in data centers are key factors underpinning this growth outlook.

Analysis

Bank of America analysts have reaffirmed their Buy rating on Caterpillar (CAT) with a $385 price target, identifying the Energy & Transportation (E&T) division as the principal catalyst for future growth. This segment, constituting approximately 40% of Caterpillar's total sales, is projected to significantly outperform the company's core operations, potentially contributing an incremental $3.00 to $3.50 in earnings per share (EPS) as new infrastructure trends materialize. The E&T division's growth is underpinned by strong, multi-year tailwinds in data centers, power generation, and gas pipelines, and is expected to enhance Caterpillar's diversification and support a higher through-cycle EPS profile. Specifically, the Oil & Gas sector within E&T, accounting for 29% of its revenue, is poised to benefit from renewed pipeline expansion, driven by anticipated policy shifts, growing LNG export interest, and sustained utility demand for gas infrastructure through the 2030s. The Power Generation vertical, representing 32% of E&T revenue, is identified as the fastest-growing area, fueled by the escalating power requirements of data centers which are driving a surge in demand for backup generation; BofA notes that large new data centers can utilize approximately 60 CAT engine generators. Furthermore, Caterpillar's Titan-350 turbine, with its 38MW output, is highlighted for its prime power potential and contribution to grid stability. Upcoming events, such as a tour of CAT’s engine facility and meetings with its largest dealer, are anticipated to provide further quantification of the E&T segment's growth opportunities extending into 2026. While Bank of America presents a strong bull case, supported by a strongly positive sentiment signal for CAT (0.8), the article also notes that InvestingPro's AI-driven analysis did not rank Caterpillar at the top of its undervalued stock list, suggesting varied perspectives on its current valuation.

Key Decisions for Investors

• Investors may consider the robust growth outlook for Caterpillar's Energy & Transportation division, particularly its exposure to data center power demand and gas infrastructure expansion, as supportive of Bank of America's Buy rating and $385 price target.
• Closely monitor upcoming catalysts, such as the engine facility tour and dealer meetings, for further validation of the E&T segment's projected $3.00-$3.50 EPS contribution and growth trajectory into 2026.
• While analyst sentiment is strongly positive, investors should also acknowledge that alternative valuation tools, like InvestingPro, suggest Caterpillar may not be the most undervalued opportunity, warranting a comprehensive due diligence approach.