Machinery & Construction: Learnings From Earnings: CAT, CMI, and TKR Remain Fundamentally Sound

Research evidence excerpt

M

Idea

August 5, 2026 01:21 AM GMT

Machinery & Construction | North America

Morgan Stanley & Co. LLC

Angel Castillo

Equity Analyst

Learnings From Earnings: CAT,

CMI, and TKR Remain

Fundamentally Sound

Stefan Diaz, CFA

Equity Analyst

Oliver Jiang

Research Associate

Esther O Osinaiya

Research Associate

What’s Changed

Timken Co (TKR.N)

From

To

Price Target

$140.00

$160.00

Machinery & Construction

North America

Industry View

Attractive

Despite the moves in the stocks, our investment views remain

unchanged. We remain EW on CAT and reiterate OW ratings and

would be buyers of CMI/TKR on the sell-off.

Key Takeaways

Caterpillar (CAT) - Strong 2Q results, though bar remains high. We see a balanced

risk/reward, remain EW with $915 PT (unchanged).

Cummins (CMI) - 2027 commentary better-than-feared and valuation screens

attractive vs. truck and industrial AI names. Reiterate OW with $761 PT

(unchanged).

Timken (TKR) - Today's negative response to the company's conservative guide

creates a buying opportunity. Reiterate OW, raise PT to $160 (~21% upside).

See Exhibits 1, 2, and 3 inside for a summary of our model changes.

Caterpillar (CAT) - Impressive beat & raise keeps hopes alive; Maintain EW on a

balanced risk/reward and reiterate our $915 PT (~4% upside). CAT reported a big

2Q EPS beat of +34% ahead of consensus and raised its full year 2026 outlook (see

HERE). Although shares initially pointed to a >11% move on the day, the stock faded

as the day wore on, underscoring that the bar to meet here remains quite elevated,

in our opinion. Specifically, we think there were three key areas of focus and key

takeaways that the market will continue to debate in the weeks to come: 1) Order

Backlog Strength - as impossible as it seemed, CAT once again exceeded

expectations here with a strong 1.5x book-to-bill and record $72.1B backlog in 2Q.

However, this is now a double edged sword – while bulls were pleasantly surprised,

we're mostly hearing investors cite concerns that this new bar is that much harder

to maintain. Combine that with CAT's announced 1.5GW power capacity addition via

the restart of its 10MW medium speed nat gas recip engines for prime power

…