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Is a Beat in the Cards for Cummins (CMI) in Q3 Earnings?

Cummins Inc.CMI is scheduled to report third-quarter 2018 earnings on Oct 30, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 12.8%. In fact, it beat estimates in all of the trailing four quarters, with an average beat of 12.6%.

In the past three months, shares of Cummins have outperformed the Auto sector. The stock has lost 0.7% compared with the sector's decline of 17.2% during the period.

Let's see, how things are shaping up for this announcement.

Cummins Inc. Price and EPS Surprise

Cummins Inc. Price and EPS Surprise | Cummins Inc. Quote

Why a Positive Surprise is Likely

Our proven model shows that Cummins is likely to beat on earnings this quarter. That is because it has the right combination of the two key ingredients - a positive Earnings ESP and a Zacks Rank #3 (Hold) or better - for increasing odds of an earnings beat.

Earnings ESP : Cummins has an Earnings ESP of +1.46%, as the Most Accurate Estimate is pegged at $3.81, higher than the Zacks Consensus Estimate of $3.75. A positive ESP indicates that the stock is poised to come up with a positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Cummins currently carries a Zacks Rank of 2 (Buy). This, when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

What's Driving Better-Than-Expected Earnings?

The company is poised to gain from frequent business acquisitions. In an effort to be a leader in the electrified power, Cummins is undertaking several acquisitions. In July, it announced that it was acquiring Efficient Drivetrains, Inc. that manufactures hybrid and fully-electric power solutions. Similarly, in January 2018, the company acquired the automotive battery business of Johnson Matthey based in the U.K. and battery pack expertise, Brammo in October 2017.

Apart from expanding through acquisitions, Cummins is widening its product portfolio by launching suite of plug-in hybrid electric powertrain solutions that can cater to diverse applications. Further, it collaborates with companies to offer products in diverse markets. In September, the company announced that it will provide electrified power solutions for KAMAZ's new line of battery-powered vehicles.

The company is focused on enhancing shareholder value by pursuing share repurchases and dividend payouts. It has set a target to return 75% of its operating cash flow to shareholders through dividends and share repurchases in 2018. In sync with the target, Cummins' board approved a share repurchase program of around $2 billion. Further, it hiked the dividend payout by 5.6% to $1.14 per share in second-quarter 2018.

For the to-be-reported quarterly results, the Zacks Consensus Estimate for net sales of the company's four segments - Engine, Distribution, Components, and Power Generation are $2.72 billion, $1.9 billion, $1.84 billion and $1.18 billion, respectively. In second-quarter 2018, these segments' actual sales figures were $2.7 billion, $2 billion, $1.9 billion and $1.2 billion, respectively.

Other Stocks to Consider

Here are a few other stocks worth considering from the same space, with the right combination of elements to outpace earnings estimates this time around:

American Axle & Manufacturing Holdings, Inc. AXL has an Earnings ESP of +6.15% and a Zacks Rank #3. The company will report third-quarter 2018 financial figures on Nov 2.

You can see the complete list of today's Zacks #1 Rank stocks here .

Advance Auto Parts, Inc. AAP has an Earnings ESP of +0.44% and a Zacks Rank of 2. The company's third-quarter financial results are expected to be released on Nov 13.

AutoZone, Inc. AZO has an Earnings ESP of +0.08% and a Zacks Rank of 2. The company's first-quarter fiscal 2019 financial results are anticipated to be released on Dec 4.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

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Cummins Inc. (CMI): 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.


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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