Caterpillar's (CAT) "better than feared" performance is driven by strong and diverse backlog growth without signs of customers advancing purchases ahead of tariffs, reduced cyclicality and management's commitment to share buybacks, Oppenheimer said in a note on Thursday.

The firm said that new tariffs could create headwinds by raising costs and dampening economic activity that may impact customer spending and affect the company's ability to mitigate tariffs.

Caterpillar may benefit competitively from a weaker US dollar and tariffs on foreign competitors, according to the note. These dynamics, along with disciplined dealer inventory levels and easing year-over-year comparisons, may allow the company to raise prices and improve margins into 2026.

Oppenheimer said the company guided for flat year-over-year sales in fiscal 2025 as weakness in construction and resource industries was offset by growth in energy and transportation.

The firm upgraded its rating on Caterpillar's stock to outperform from perform and instated a $395 price target.

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