Cummins Inc. (CMI) is set to benefit from fuel economy improvement, new emission trends, market share gains, growing international markets, and increased prices. The companyâs financials are also rapidly improving. However, the slumping U.S. economy and a softening heavy duty truck market which forms over 50% of the companyâs business raise concern.
On April 30, 2008, Cummins reported first quarter 2008 results. In the first quarter, earnings per share were $0.97 as compared to $0.71 per share in the same period of 2007. Sales were $3.47 billion, up 23% from the corresponding quarter of the previous year, backed by higher international sales which accounted for 57% of the total revenues. In the Engine division, sales increased 25% to $42.21 billion. Revenues in the power generation segment increased 17% to $787 million and that in the distribution segment increased 44% to $445 million.
EBIT increased 30% to $315 million. For the full year 2008, Cummins affirmed its previous forecasts for revenues to grow by at least 12% over 2007 to $14.61 billion. The company expects to achieve its EBIT target of 10% of sales for the full year. Earnings per share are expected to be up 20% from the previous year. The company expects margins of 8.5% from the engine segment in 2008.
Cumminsâ stock is valued at 14.2x our 2008 earnings estimate of $4.64. The company is set to benefit from fuel economy improvement, new emission trends, market share gains, growing international markets and increased prices. The companyâs financials are also rapidly improving.
However, the slumping U.S. economy and a softening heavy duty truck market forming over 50% of the companyâs business raise concern. As a result, we rate the shares a Hold with a target of $70. This is 15.1x our 2008 earnings estimate.
Read the full analyst report on CMI.
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