Back to Main

Will Cummins Inc.'s (CMI) Surprise This Earnings Season? - Analyst Blog

Posted: 7/25/2014 6:45:00 PM
Referenced Stocks: CMI;MTOR;BWA;AXL

Cummins Inc. ( CMI ) is set to report second-quarter 2014 results on Jul 28, 2014. Last quarter, it posted a surprise of +9.58%. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

For 2014, Cummins increased the revenue guidance to 6-10% based on increased demand, particularly in North America. The company expects launch of new and innovative products to enhance profitability. Moreover, Cummins is focused on enhancing shareholders value by pursuing aggressive share repurchases and increasing dividend payouts. Cummins' board authorized a share repurchase of up to $1 billion and announced a 25% increase in dividends to 78 cents.

However, weakness in the operating markets is considerably affecting the results of Cummins. The company is witnessing a challenging situation in India and Brazil because of weak economic conditions. In 2014, the company expects total revenue in India to decline 8%. Revenues in Brazil are expected to decline 15% this year due to weak truck demand.

Earnings Whispers?

Our proven model does not conclusively show that Cummins is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP represent the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Cummins' Most Accurate estimate stands at $2.34 while the Zacks Consensus Estimate is pegged at $2.39. Hence, the difference stands at -2.09% for the company.

Zacks Rank: Cummins' Zacks Rank #2 (Buy) when combined with a negative ESP, makes surprise prediction difficult.

We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Meritor, Inc. ( MTOR ) has an earnings ESP of +13.33% and a Zacks Rank #2. The company will be reporting second-quarter earnings on Jul 31, 2014.

BorgWarner Inc. ( BWA ), with an earnings ESP of +1.15% and a Zacks Rank #2, will be reporting second-quarter earnings on Jul 31, 2014.

American Axle & Manufacturing Holdings Inc. ( AXL ) has an earnings ESP of +8.45% and a Zacks Rank #2. The company will release its second-quarter financial results on Aug 1, 2014.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CUMMINS INC (CMI): Free Stock Analysis Report

MERITOR INC (MTOR): Free Stock Analysis Report

BORG WARNER INC (BWA): Free Stock Analysis Report

AMER AXLE & MFG (AXL): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research