On Jun 21, we have downgraded
) to Underperform from Neutral based on the weaknesses in mining,
oil & gas, and in the power generation markets. The weakness
may adversely affect the results of the company. In addition, the
company reported a dismal first-quarter 2013 performance.
Why the Downgrade?
On Apr 30, Cummins posted a sharp 39.5% fall in earnings to $1.44
per share in the first quarter of 2013 from $2.38 in the same
quarter of 2012 (all excluding special items). Earnings also
missed the Zacks Consensus Estimate of $1.86. Lower earnings were
attributable to weak demand in the company's most major
geographies and end markets.
Revenues in the quarter dipped 12% to $3.9 billion, which was
marginally lower than the Zacks Consensus Estimate of $4.0
billion. Revenues in North America dropped 15%, while
international revenues decreased 10% during the quarter.
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 decreased 10.4% to $7.84 per share.
The Zacks Consensus Estimate for 2014 dropped 6.2% to $9.59 per
share. Due to the downward estimate revisions, Cummins retains a
Zacks Rank #5 (Strong Sell).
Cause for Concern
We are concerned about the weak construction market as it
adversely affects Cummins' heavy- and medium-duty trucks sales.
The company's heavy- and medium-duty trucks constitute 53% of its
portfolio, of which 47% is based in the U.S.
In addition, weaknesses in mining, oil and gas and power
generation markets are challenging for the Cummins' Engine
segment. Based on these, Cummins anticipates revenues to be flat
to down 5% in full year 2013.
Other Stocks to Consider
Some other stocks that are also performing well in the broader
industry where Cummins operates include
Magna International, Inc.
). All these companies carry a Zacks Rank #1 (Strong Buy).
CUMMINS INC (CMI): Free Stock Analysis Report
LEAR CORPORATN (LEA): Free Stock Analysis
MAGNA INTL CL A (MGA): Free Stock Analysis
VISTEON CORP (VC): Free Stock Analysis Report
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