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Caterpillar’s recent run higher is unsustainable and investors should steer clear of the stock as tariffs hit the business, according to Morgan Stanley. Morgan Stanley downgraded the construction and engineering equipment maker to underweight from equal weight in a Thursday note. It did raise its price target to $350 per share price from $283, though that still calls for more than 19% downside from Wednesday’s close. Analyst Angel Castillo said that while shares have surged more than 50% from their April lows, both profitability and broader fundamentals have not kept pace, which he said points to potential “negative earnings revision risk.” CAT YTD mountain CAT year to date “With shares priced for perfection, we now see a 2-to-1 negative risk/reward skew,” the analyst added. Headwinds from President Donald Trump’s tariffs have also started to hit Caterpillar’s business. The company’s operating profit fell 18% from a year earlier, Caterpillar said in its quarterly results on Tuesday, citing troubling manufacturing costs that ” largely reflected the impact of higher tariffs .” The analyst said even though there were some positive takeaways from Caterpillar’s second-quarter results, “the negatives point to a steady deterioration in the fundamentals and skew the risk to the downside.” “We disagree with bulls’ pushback that CAT’s results should be looked at excluding the Tariff headwind as these are a very real cost of doing business, and one that we expect to remain in place for the foreseeable future,” the analyst said. Shares have added about 18% in 2025.
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