11:43 AM EDT, 08/07/2025 (MT Newswires) -- Caterpillar ( CAT ) shares are "priced for perfection" after a 50% rally since April despite deteriorating margins, falling prices, increasingly unfavorable risk/reward and weakening construction demand, Morgan Stanley said Thursday in a report.

While the Q2 earnings report showed sequential improvement in orders and backlog growth, the analysts warned that underlying KPIs such as price realization and margin compression point to weakening demand.

Despite modest upward revisions to revenue forecasts to $63.5 billion from $62.1 billion for 2025 and $65.7 billion from $64.5 billion for 2026, driven by Power Gen strength, the firm reduced its 2026 earnings per share estimate to $18.00 from $19.10.

Analysts surveyed by FactSet expect revenue of $63.49 billion in 2025, $66.86 billion for 2026, and adjusted EPS of $21.42 in 2026.

Morgan Stanley also flagged declining pricing trends in both construction industries and resource industries, suggesting Q2 strength may reflect a pull-forward of orders ahead of anticipated tariff hikes.

The firm downgraded its rating on the stock to underweight from equal weight and adjusted its price target to $350 from $283.

Shares of the company were down more than 3% in recent Thursday trading.

Price: 413.70, Change: -14.02, Percent Change: -3.28