UBS upgrades Caterpillar as trade risks ease, but macro uncertainty remains

Investing.com -- UBS upgraded Caterpillar (NYSE:CAT) to Neutral from Sell in a note Friday, raising its price target for the stock to $357 from $272 a share. 

The bank highlighted a more contained downside scenario for the stock after recent progress in U.S.-China trade talks, though analysts warned the company is “not out of the macro woods.”

“We no longer see the same extent of downside risk to earnings and multiples,” UBS said, noting that earlier projections of a 20-40% year-over-year earnings decline in 2025 have been revised to 15-20%.

The shift follows what UBS called “better than expected progress and outcomes of trade discussions with China,” as well as recent policy moves pointing toward tariff de-escalation. 

UBS had previously cut its machinery coverage estimates by over 30% following April 2 tariff announcements.

While the easing of trade tensions has improved the outlook, UBS cautioned that “lingering uncertainty will be somewhat of a drag on demand.” 

Tariffs, even if softened, will still be “borne by a combination of corporates and consumers.”

UBS now expects U.S. non-residential construction to rebound to 4% growth in 2025, with Caterpillar’s North American construction machinery sales projected to return to 3-4% growth in the second half of 2026. 

Earnings margins are also expected to decline less severely, 240 basis points instead of the previously forecast 390.

Despite the improved outlook, UBS warned of a “slow rollover” in the broader economy and flagged the risk that Caterpillar’s stock “could trade lower on the weaker data.”