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Factors Shaping Cummins' (CMI) Fate Ahead of Q3 Earnings

Cummins Inc. CMI is slated to release third-quarter 2020 results on Oct 27, before the opening bell. The Zacks Consensus Estimate for the quarter’s earnings and revenues is pegged at $2.40 per share and $4.47 billion, respectively.

The company delivered better-than-expected results in the last reported quarter on higher-than-expected contribution from Distribution, Engine and Power Systems segments. Over the trailing four quarters, Cummins beat estimates on three occasions and missed once, with the average surprise being 45.2%. This is depicted in the graph below:

Cummins Inc. Price and EPS Surprise

Cummins Inc. Price and EPS Surprise

Cummins Inc. price-eps-surprise | Cummins Inc. Quote

Trend in Estimate Revisions

The Zacks Consensus Estimate for Cummins’ third-quarter earnings per share has been upwardly revised by 3 cents in the past seven days. The year-ago earnings were $3.83 per share. The Zacks Consensus Estimate for revenues suggests a year-over-year decrease of 22.5%.

Earnings Whispers

Our proven model predicts an earnings beat for Cummins for the to-be-reported quarter, as it has the right combination of the two key ingredients. A combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Cummins has an Earnings ESP of +3.58%. This is because the Most Accurate Estimate for loss is pegged 9 cents higher than the Zacks Consensus Estimate.

Zacks Rank: It carries a Zacks Rank of 3 currently.

Key Factors

After taking a nasty hit during the second quarter, vehicle sales across the globe have been gradually on the mend. With third-quarter auto sales, especially in China and the United States, rebounding from coronavirus-related lows, things are looking up for Cummins this earnings season. Gradual reopening of the economy and a subsequent rise in sales of vehicles including SUVs and commercial trucks are likely to have boosted the demand for Cummins’ products.  While sales of the engine manufacturer are expected to have declined on a year-over-year basis, performance from all segments is likely to have improved sequentially.

The Zacks Consensus Estimate for the engine segment’s quarterly net sales is pegged at $1,844 million, indicating an increase from the prior quarter’s $1,423 million. The same for the segment’s EBITDA is $241 million, calling for a 60% increase sequentially.

Third-quarter sales estimate for the distribution segment is pegged at $1,786 million, suggesting an improvement of 11.3% from the prior-quarter levels. The consensus mark for the distribution segment’s EBITDA stands at $175 million, suggesting an increase from $160 million recorded in the previous quarter.

The Zacks Consensus Estimate for its power system segment’s quarterly net sales is $826 million, implying growth from the prior quarter’s $777 million. Further, the Zacks Consensus Estimate for the components segment’s quarterly net sales of $1,262 million points to a 9.7% rise from the prior-quarter levels. Increased sales of turbochargers and emission solutions products are expected to have driven sales from the components unit. The consensus estimate for the segment’s EBITDA also indicates an uptick of 25% from the prior-quarter levels.  

Other Stocks With Favorable Combination

Cummins is not the only auto company looking up this earnings season. Here are some other companies within the same space, which, according to our model, also have the right combination of elements to post an earnings beat in the to-be-reported quarter:

Ford F has an Earnings ESP of +19.51% and carries a Zacks Rank #2 at present. The company is slated to release third-quarter 2020 earnings on Oct 28.

O’Reilly Automotive ORLY has an Earnings ESP of +4.18% and currently carries a Zacks Rank #3. The company is slated to release third-quarter 2020 earnings on Oct 28.

Cooper Tire Rubber CTB has an Earnings ESP of +19.84% and carries a Zacks Rank #1 currently. The company is slated to release third-quarter 2020 earnings on Oct 29.

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Ford Motor Company (F): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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