Caterpillar: Macroeconomic Outlook For 2025 Signals Trouble For Heavy Equipment

Summary

• Caterpillar's performance is closely tied to macroeconomic cycles. Construction spending has remained stagnant amid higher borrowing costs and cost inflation.
• I expect infrastructure investments to slow in 2025 as companies grapple with lower returns on significant investments due to higher labor, materials, and borrowing costs.
• Caterpillar's profit margins are around twice their normal level, which indicates a potential profit decline of sizeable proportions if the shortage of heavy equipment reverses in 2025, as I expect.
• While long-term infrastructure and construction needs are significant, immediate economic trends do not support strong demand for heavy equipment, suggesting a potential decline for CAT in 2025.

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In July, I covered the construction and industrial equipment giant Caterpillar (NYSE:CAT) (NEOE:CATR:CA) in "Caterpillar: Sales Growth Outlook Likely Overestimated As U.S. Construction Spending Falls." My view is fundamentally tied to my outlook

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.