UBS has upgraded Caterpillar Inc. (NYSE:CAT) from Sell to Neutral, reflecting improved sentiment around the stock following recent progress in U.S.-China trade negotiations. The bank also lifted its price target to $357 from $272, citing a more favorable risk-reward outlook.
While acknowledging an improved trade environment, UBS analysts cautioned that broader macroeconomic challenges continue to loom. “We no longer see the same extent of downside risk to earnings and multiples,” the note stated, revising previous estimates of a 20–40% drop in 2025 earnings to a more moderate 15–20% decline.
The revision comes on the heels of what UBS called “better-than-expected outcomes” in recent trade discussions with China, alongside signs of tariff de-escalation that have eased pressure on multinational manufacturers like Caterpillar. Earlier in April, the bank had slashed its outlook for the machinery sector by more than 30% due to aggressive tariff measures.
Despite the brighter trade picture, UBS stressed that macroeconomic headwinds persist, and that lingering uncertainty could weigh on demand. Even with softened tariffs, the associated costs will likely still impact both corporations and consumers, the report said.
On the operational front, UBS now forecasts a 4% rebound in U.S. non-residential construction activity in 2025, supporting an expected 3–4% growth in Caterpillar’s North American machinery sales in the second half of 2026. Additionally, projected margin declines have been revised to 240 basis points, a significant improvement from the earlier estimate of a 390-basis-point drop.
Still, the bank warned that a “slow rollover” in broader economic indicators could cap gains. “Caterpillar shares could face renewed pressure if incoming data weakens,” UBS noted.
The upgrade reflects a more balanced view of Caterpillar’s near-term risks and opportunities, though the firm remains cautious about the global economic backdrop and its potential to impact industrial demand.
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