Cummins: Reasons to Buy the Drop

Cummins (CMI) is down 23% in 2015. But, the company’s turnaround cannot be ruled out as its quarterly numbers indicate steady growth in financials. For example, last quarter, Cummins had reported revenue of $5 billion, up 6% sequentially and 4% from last year. Moving ahead, Cummins has reaffirmed its fiscal year 2015 revenue to grow in the range of 2% to 4%.

Further, Cummins has also reiterated its full year 2015 sales guidance in 2% to 4% range and EBIT guidance in 13.5% to 14% range.

A look at the end market growth

Cummins witnessed satisfactory top line growth for the engine segment owing to a solid demand in the on-highway markets of North America, somewhat offset by poor demand in worldwide industrial markets.
EBIT grew year-over-year due to weaker operating costs, reduced material costs, and enhanced JV earnings.

The expansion in revenue for heavy duty truck segment in North America was somewhat offset by lower global demand. For the medium-duty truck and bus segment, improved international bus and North American truck sales were somewhat offset by poorer global truck demand. The light-duty automotive segment witnessed lower demand in Brazil and weaker aftermarket.

The key engine manufacturer is expected to grow significantly, given healthy demand for its innovative engine products and power generation equipments.

Cummins shipments to the heavy duty truck markets in North America surpassed 28,000 units during the second quarter of 2015, up 18 percent from the same period last year. Moving ahead, Cummins estimate its complete year market share to be in 34% to 35% range and its earlier expectation of 36%. Further, complete year market size is forecasted to grow by 8% and same as the company’s earlier guidance.

For the medium duty truck market, Cummins delivered 26,000 key engines during the second quarter, an increase of 18% from previous year. At present, the company estimates its market to expand by 4% for this year 3% better than its earlier estimate. In addition, Cummins is also growing its market share estimate with its complete year market share currently forecasted to be about 76%, an increase from 72% estimated during the previous year and better than its earlier estimate of 74%.

The company’s healthy shipments in both the medium and heavy duty truck markets is primarily driven by rising demand for accelerated transport mechanisms, delivering commodities to the set destinations timely and cost-effectively. The slow but steady improvement in the global economic conditions is also driving strong demand and thus it has encouraged Cummins to raise its full-year production and delivery guidance for 2015.

Both India and China will be drivers for the company with the company present in India for over 50 years along with its presence in China for more than 30 years. Cummins has solid OEM partnerships in both the countries coupled with a significant growth from its wide product portfolio of On and Off-Highway.


Investors are advised to go long Cummins due to an attractive valuation, as it has a trailing P/E and forward P/E ratio of 11.88 and 10.74. The profit margin of 8.76% also seems satisfactory. Moreover, Cummins growth initiatives are further supported by its robust balance sheet with significant total cash position of $1.85 billion. Hence, investors can consider investing in Cummins for the long run.
Published on Oct 14, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...