Caterpillar (CAT) is positioned for continued earnings growth as demand in its power and energy segment accelerates and construction dealer inventories keep building, UBS Securities said Tuesday in a report.

The company's expanding backlog and strengthening end-market trends provide greater clarity around 2027 and 2028 earnings, the report said.

UBS raised its 2026-2028 EPS estimates, citing robust growth in natural-gas power generation, improving conditions in construction and resource industries, and rising oil and gas investment. The power and energy business is expected to account for more than 40% of Caterpillar's profit in 2027, UBS said.

While Wall Street expectations are already elevated, Caterpillar still exhibits characteristics of a company entering a multiyear earnings expansion, UBS said. Backlog has climbed 70% in the past three quarters amid few near-term downside catalysts as demand remains strong across key markets, the report said.

UBS lifted its price target on Caterpillar stock to $900 from $677 and kept its neutral rating.

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