Deere & Company

(New York Stock Exchange)
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Somewhat Bullish +32

Caterpillar and Deere Hit Opposite Cycle Peaks: One Rides Momentum, One Hunts Value

AI-generated analysis

πŸ“ˆ Caterpillar reported Q4 record revenue of $19.1B driven by a 44% surge in Power Generation sales due to data center demand.

⚠️ Despite record revenue, Caterpillar's operating margin compressed to 13.9% as $1.03B in tariff costs eroded profitability.

πŸ“‰ Deere & Company saw Q1 profit collapse of 59% in its Production & Precision Agriculture segment due to tariffs and warranty costs.

⬆️ Construction & Forestry revenue for Deere jumped 34% to $2.67 billion with operating profit more than doubling.

🀝 Both companies faced significant tariff headwinds, but Caterpillar rode data center momentum while Deere positioned itself at the cycle bottom.

πŸ“Š Caterpillar has a record backlog and strong momentum, reflected in an 185% stock gain over the past year.

🚜 Deere management raised FY2026 net income guidance to $4.5B-$5B and identified 2026 as the bottom of the large ag cycle.

πŸ’° Caterpillar deployed $5.2 billion on buybacks in 2025 while Deere trades at a 33x forward earnings multiple.

🧠 Analysts view Caterpillar as the better business right now due to clean execution and real tailwinds from AI data centers.

🌾 Investors see Deere as more interesting for value plays, betting on agricultural recovery and new technology investments.

βš–οΈ The key risk for both names is further tariff cost expansion which could signal worsening fundamentals.

πŸ›’ Small Ag growth and construction strength of roughly 15% each must offset the guided decline in Deere's large ag segment.

Bullish Signals
  • Deere & Company raised FY2026 net income guidance to $4.5 billion to $5 billion, signaling management confidence in the upcoming cycle.
  • Deere's Q1 saw Construction & Forestry revenue jump 34% with operating profit more than doubling, demonstrating strong segment growth.
  • Caterpillar delivered a record backlog driven by hyperscaler data center orders, providing a robust pipeline for future revenue.
  • Caterpillar's Power Generation segment surged 44% to $3.23 billion as demand from large-scale data centers continues to accelerate.
  • John May of Deere emphasized that 2026 represents the bottom of the large ag cycle, suggesting significant upside potential in precision agriculture investments.
  • Caterpillar CEO Joe Creed highlighted a record backlog and strong momentum entering the new year with $5.2 billion deployed on buybacks in 2025.
  • Deere is strategically pushing new 210, 230 & 260 P-Tier construction lineup and See & Spray precision technology to capture market share.
  • Caterpillar's North America region performed exceptionally well with sales up 26%, indicating strong regional demand.
Risk Factors
  • Caterpillar's operating margin compressed significantly to 13.9% from 18%, with tariffs alone costing $1.030 billion in the quarter, indicating profit leakage despite record revenue.
  • Deere's Production & Precision Agriculture segment saw its operating profit collapse by 59% due to tariffs, unfavorable mix, and warranty costs, while net income fell 24.51% even after a revenue beat.
  • Deere has raised FY2026 guidance but faces the risk that Small Ag and Construction growth of roughly 15% each may fail to offset a large ag segment guided down 5-10% due to commodity prices and farm income uncertainties.
  • The article notes that for Caterpillar, there is uncertainty regarding whether it can convert its record backlog into actual margin expansion as tariff absorption hopefully peaks.
  • Further tariff cost expansion in the next quarter is identified as a key risk signal for both Caterpillar and Deere.
Full Analysis
Caterpillar and Deere & Company reported contrasting earnings outcomes as heavy equipment manufacturers navigating different cycle positions and demand drivers. Caterpillar posted record Q4 revenue of $19.1 billion, largely fueled by a 44% surge in Power Generation sales to hyperscalers building data centers, while its Construction Industries segment grew 15%. Despite North American revenue rising 26%, the company faced margin compression, with operating margins falling to 13.9% from 18% as $1.03 billion in costs were directly attributed to tariffs. CEO Joe Creed highlighted a record backlog and strong momentum, supported by $5.2 billion in buybacks over 2025 and shares that have gained 185.46% over the past year. In contrast, Deere & Company presented a more mixed picture for its first quarter of fiscal 2026, with Construction & Forestry revenue jumping 34% to $2.67 billion while Small Agriculture & Turf rose 24%. However, the Production & Precision Agriculture segment struggled significantly, with operating profit collapsing 59% due to tariffs, an unfavorable product mix, and warranty costs; this resulted in a 28.07% beat on revenue but a 24.51% drop in net income. CEO John May positioned the company at the bottom of the large ag cycle for 2026, raising full-year 2026 net income guidance to $4.5 billion–$5 billion and introducing new P-Tier construction machinery alongside precision technology investments. The core divergence lies in their strategic positioning: Caterpillar is capitalizing on immediate momentum from data center orders with a record backlog but faces challenges converting that revenue into expanding margins as tariff impacts persist. Deere, trading at 33x forward earnings, offers a cyclical recovery narrative where construction acceleration and future precision agriculture investments could offset current weaknesses in the large ag segment, though its progress depends heavily on broader farm income trends and commodity prices. Both companies face continued tariff headwinds that pose a key risk to future profitability expansion.