Caterpillar (CAT) vs Deere (DE): two cycles, two cash flows

2026-10-20 · By Lubin Danilo, founder of Lubin Investment

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Caterpillar is the better cash machine of the two: 11.7% of its sales end up as free cash versus 6.4% at Deere, with a record $72bn backlog driven by data centers. But both stocks are expensive against their own history, Caterpillar most of all.

On August 4, 2026, Caterpillar reported a quarter of $20.5bn in sales, the first above $20bn in its history, and a backlog of $72.1bn, up about 92% in a year. The engine is no longer the excavator or the haul truck: it is power generation, large engines and turbines that data centers order, sometimes as far out as 2030.

On August 20, Deere answered with $12.6bn of sales and $1.38bn of net income, then raised its guidance. But its CEO keeps saying 2026 should be the bottom of the farm cycle: in the United States and Canada, demand for large agricultural equipment is expected to fall 15% to 20% this year.

Two machinery makers, two moods. The question I asked myself is simple: which one turns sales into cash the shareholder can actually keep, and what does the stock price assume?

A trajectory that sets them apart

A single number tells you nothing about a cyclical company, the slope is what counts. At Caterpillar, sales went from $41.7bn in 2020 to $67.6bn in 2025. At Deere (fiscal year ending in October), they fell from $60.2bn in 2023 to $44.7bn in 2025, a quarter less. Free cash flow is what is left of the money collected once the investments needed to keep producing are paid. Divided by the number of shares, it tells the story from the shareholder's side.

Both buy back shares: about 14% fewer in five years at Caterpillar, 7% in two years at Deere. That cushions the fall without cancelling it: free cash flow per share is down about 17% at Caterpillar since 2023 and about 26% at Deere since 2024. At Caterpillar, tariffs weigh: the company estimates them at about $2.2bn for 2026. At Deere, the cycle trough does the damage, with some tariff refunds ($382M over nine months) softening the picture.

What stays in the shareholder's pocket

My way of judging a company's quality comes down to a few questions: how much of its sales becomes free cash, how much each invested dollar earns (Cash ROCE, free cash flow divided by capital employed), and whether that cash is real cash or only accounting profit. On all three, Caterpillar comes out ahead.

Caterpillar turns 11.7% of its sales into free cash and earns a Cash ROCE of 16.1%. Deere sits at 6.4% and 13.0%. Above all, Caterpillar converts 81% of its profit into real cash, Deere 63%: part of the gap comes from inventories and receivables, as farm equipment is sold on credit and piles up at dealers when demand weakens.

Deere's debt is not what it looks like

My leverage indicator shows 17.9 years of free cash flow to repay net debt at Deere, against 4.4 years at Caterpillar. The figure is scary but misleading. Deere owns an in house bank, John Deere Financial, which lends to farmers and dealers so they can buy tractors. That bank borrows in the markets (about $64bn of total debt in my data) and lends the money on: the debt is backed by loans that earn interest, it is not the debt of a factory that overinvested.

Caterpillar has the same mechanism with Cat Financial, which my data treats differently. The two ratios are therefore not comparable as they stand, and I do not conclude that Deere is five times more indebted. What remains true: that bank absorbs part of the cash and exposes Deere to farmers' credit risk, exactly when their income falls.

The price: a good story, but already paid for

First step: against its own past. Caterpillar is valued today at 38 times its free cash flow, more expensive than 93% of its valuations in recent years. Deere, 55 times, more expensive than 81% of its history. Second step: why? For Caterpillar, the market pays for data center power, a backlog running to 2030 and capacity that is the real limit, not demand. For Deere it is almost the opposite: the multiple is inflated because cash is at a low, and the market bets on the cycle turning.

Third step: is it justified? Caterpillar's story is real, but the price assumes it plays out almost without a hitch, while cash per share fell in 2025 despite record sales. Deere's is more fragile: buying at 55 times a trough cash flow only makes sense if the trough is really here, and nobody can promise that. I can be wrong on timing, not on the mechanics: a cyclical company is expensive when all goes well and cheaper to buy when cash returns.

The buy price comes from a deliberately harsh model: a 15% yearly target return and free cash flow that keeps falling. It is not a forecast, it is a guardrail. Mostly it says that neither stock offers a margin of safety today. Caterpillar reports next on October 29, Deere on November 25.

My verdict, without enthusiasm

If I had to keep only one, it would be Caterpillar: better cash, a cycle carried by a real need for electricity, a more readable debt. But I would not buy it at this price, and I would understand Deere better once the farm cycle turns than today. Read both pages in detail: Caterpillar and Deere.

For the latest figures: Caterpillar's second quarter 10-Q and Deere's third quarter release. For the logic of valuing a cyclical company, Damodaran's notes remain the reference. And if you want to see how I score a company, my full methodology details every criterion.

FAQ

Caterpillar or Deere: which has the better cash?

Caterpillar. 11.7% of its sales become free cash versus 6.4% at Deere, with 81% of its profit converted into real cash versus 63%.

Why does Deere's debt look so high?

Because Deere has an in house bank that borrows to lend to farmers. That debt is backed by loans that earn interest, so it is not comparable to a pure industrial company's debt.

Are these stocks expensive right now?

Yes against their own history: Caterpillar is more expensive than 93% of its past valuations, Deere than 81%. My cautious model sees no margin of safety in either.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).