Caterpillar's (CAT) execution in the face of ongoing macro headwinds as well as its solid backlog of $63 billion continue to aid an attractive longer term growth, Morgan Stanley said in a Friday note.

The company raised its near-term and longer term outlooks on the back of its strong Q1 results and capacity investments in its large reciprocating engines, Morgan Stanley said, adding that the confidence is further bolstered by rising capex from several hyperscalers.

Morgan Stanley said it has shifted its valuation methodology on Caterpillar to a multi-growth stage discounted cash flow that assumes a 2025 to 2030 sales compound annual growth rate of 12%, a 2030 to 2040 CAGR of 8% and discounts steady 30% incremental margins and no material downturn in the core cyclical construction or mining businesses.

Morgan Stanley upgraded its rating on the company's stock to equalweight from underweight and adjusted its price target to $915 from $430.

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