When machinery markets hit rock bottom, valuation becomes the name of the game. Bank of America Securities analyst Michael Feniger is betting on Caterpillar Inc. (CAT) over Deere & Company (DE), maintaining a Buy rating with a $650 price forecast on Caterpillar even as both heavy equipment giants navigate challenging conditions.

The call comes after Feniger dissected what Deere's recent earnings reveal about the broader machinery landscape and what that means for Caterpillar's prospects.

What Deere's Numbers Are Saying

Deere delivered a solid quarterly performance that beat expectations. The company posted earnings per share of $3.93, topping the $3.88 consensus, while quarterly sales jumped 11% year-over-year to $12.39 billion, crushing analyst estimates of $9.85 billion.

But here's where it gets interesting: Deere expects fiscal 2026 net income between $4.0 billion and $4.75 billion, representing a year-over-year decline of anywhere from 5.5% to 20%. Not exactly a victory lap, but in machinery markets scraping trough levels, it's what you'd expect.

Caterpillar's Recent Performance

Caterpillar has been holding its own. The company's third-quarter 2025 results beat Wall Street expectations back in October, powered by strong demand across its key business segments. Sales and revenues climbed 10% year over year to $17.64 billion, beating analyst estimates of $16.77 billion, while adjusted earnings per share hit $4.95, comfortably ahead of the $4.52 estimate.

Looking ahead, Caterpillar expects 2025 full-year sales and revenues to be modestly higher than 2024, with services revenues roughly flat compared to the prior year. The company also flagged full-year incremental tariff costs in the range of $1.6 billion to $1.75 billion, a significant headwind that investors are watching closely.

The Bull Case for Caterpillar

Feniger's thesis hinges on several observations from Deere's results that actually paint a brighter picture for Caterpillar. The bearish narrative around CAT's construction pricing appears to be weakening. Construction Industries pricing declined 7% in Q2, improved to -4% in Q3, and is expected to flatten in Q4. Meanwhile, Deere is guiding for construction and forestry pricing up 3% in fiscal 2026.

This doesn't mean we're headed for a construction boom. Deere is projecting construction and forestry sales up 10% in fiscal 2026, with earthmoving in the mid-teens. But the analyst sees this as reflecting the "torque" of underproduction combined with strong retail sales, with Deere expecting first-quarter construction and forestry sales to jump 20%.

Adding to the picture, Deere's North American earthmoving equipment inventories remain tight at negative 35%, suggesting supply constraints that could support pricing.

The Valuation Argument

Here's where the rubber meets the road. Investors have questioned Caterpillar's valuation at 24x Bank of America's 2026 EPS estimate, while Deere trades at 29x its fiscal 2026 EPS guidance of roughly $16. That provides a useful reference point for what the market will pay for machinery companies at trough levels.

Feniger acknowledges that Caterpillar's valuation isn't cheap relative to its historical range of 10x to 30x earnings. But with machinery markets in mining and construction at trough levels, he argues the valuation supports a recovery multiple. In other words, you're paying for the upside when things turn around, and at 24x versus Deere's 29x, Caterpillar looks like the better bet.

Price Action: CAT shares traded down 0.44% at $573.40 on Monday.