Cummins Inc. CMI

25 October I am flabbergasted by the reaction in Cummins Engine (CMI) today (as well as NII Holdings (NIHD). I think Cummins Engine simply got Cramerized. By Cramerized I mean, a bevy of momentum trader/Mad Money types who are new to the market flock in on a Cramer mention and at the slightest hint of disappointment flee to the hills, with their realized losses in tow. Silly. Here is my original thesis on Cummins Engine. Here is a Kiplinger's article a few weeks later; I wrote then No it is not cheap. Yes it's valued higher than historical levels but (a) analysts thus far have been unable to get a grip on earnings potential and constantly undershoot so it becomes 'cheaper' on forward earnings as each quarter passes and real earnings come in higher than analysts estimates and (b) Chindia - need I say more? As I pointed out in my analysis, they have been there for a long time - they know the markets - they have the relationships. Do I see huge upside from these levels in Cummins (CMI) in the near term? Probably not. But for the next few years at least this stock should be in the sweet spot in it's market and that deserves multiple expansion as we move to a secular growth story for the next 3-5 years. I stand by that and unlike mid October when it was not cheap - it now has become so. What are you getting? A 18-20% grower, wonderfully positioned in the strongest growing markets in the world, at forward PE on 2007 of under 14, and 2008 of under 12. Once the fuss is over, and we look out a few quarters into mid 2008 you will see a stock trading on $9+ earnings and applying a 19 PE ratio my target will be $170s. When the stock traded mid to upper $130s it wasn't quite a great one year return (30%). From here around $107, that gives me 60% upside. Even if growth slows to 15-16% you still have a lot of upside from these levels. Is this the bottom? Who knows - I doubt it. Stocks usually get trashed for half a week to a full week after these type of 'disappointments' but the stock is now approaching its mid August lows during the credit crunch fears. With the market on shaky legs we could go lower on the name; but I like it a lot more under $110 than near $140. Again, I don't expect any near term bounces, but its time to start rebuilding this position if the market is going to offer such prices for this level of growth. Once again, we have a company that did "beat and raise" - it simply "beat and confirmed" and that is worth a 20% haircut? For an industrial company? I'd understand for a fast growing tech company. Strange times, but I truly believe people who only buy on momentum are in many of these stocks. I am trying to see where the next support level is, perhaps mid $90s. But at that point the stock will be traded at nearly half its growth rate? Makes sense? Only if people believe 2008 estimates are simply a mirage. Yes North America is weak but every industrial company has been saying that for 2 weeks - why the surprise? I've pulled Cummins Engine up to 2.9% of the fund on this massive selloff. A quick look at earnings: I've pulled Cummins Engine up to 2.9% of the fund on this massive selloff. A quick look at earnings: Cummins Engine Co. shares dropped as much as 17% Thursday after the engine maker said its earnings growth was slowed by weakness in the North America heavy-duty truck market and costs associated with stricter emissions rules. Cummins did manage to post a 7.6% rise in third-quarter profit, but the results and the company's outlook for 2007 came up shy of Wall Street targets. The Columbus, Ind.-based company handed in earnings of $184 million, or $1.84 a share, up from $171 million, or $1.69 a share, a year earlier. Net sales climbed 20% to $3.37 billion from $2.81 billion. Analysts polled by Thomson Financial had expected earnings, on average, of $1.95 a share on revenue of $3.22 billion. In the company's core engine business, sales grew 17% even as the industry forecast for trucks calls for 180,000, about half of the tally in 2006. Cummins said it has increased its big rig truck engine market share through August to 36% from 27% a year earlier. Bear Stearns analyst Peter Nesvold pointed to the components side as the primary area of margin weakness, while the other divisions were mostly in line with his expectations. "(Components) has been the only drag on CMI's portfolio over the last several years, " he said. "And while margins in this segment are improving year over year, the trajectory has been slower than we expected. We think the market will want to get comfortable with the timing and magnitude of corrective actions." The components segment, which includes filtration, fuel systems and turbocharger businesses, posted a 31% surge in sales. But the company said gross margins were hit by costs associated with the rollout of new emissions-compliant products. Looking ahead, Cummins said it remains on pace to meet its full-year earnings guidance of $7.15 to $7.65 a share. Wall Street previously forecast full-year earnings of $7.70 a share. Andrew Casey, analyst at Wachovia Securities, stood by his outperform rating and said he'd recommend taking advantage of Thursday's pullback. "We continue to view the stock as benefiting from (long-term) secular trends from increased emissions reduction content, increased penetration of diesel engines in (North America) and increased exposure to Asian growth markets," he wrote in a note to clients. JPMorgan Securities analyst Stephen Volkmann considered the results "relatively in line with the Street." "However, Cummins has a history of beating and raising - of which neither transpired this quarter," he said in a client note, predicting the stock decline. Long Cummins Engine in fund; no personal position sept 24 The company has about $700 million in sales in China now, projecting to more than double by 2011. India? I think they just cut and paste the same Powerpoint slides over from the China section of the presentation and copied the word "India" over "China". And these are not recent initiatives - the company has been on the ground in these countries for many years, laying a framework. In 1999, 40% of Cummins' sales were foreign, 60% US. Now? 50/50. By 2011, foreign sales will be greater than domestic. It pays dividends... it buys back stock... and yes it's an old 'smokestack' type of business, but old is new again. Let's look at current valuations. Unfortunately (for those left out) the stock just jumped from $120 to $140 in the day and half after Ben blessed us all to speculate again. 16% that quick? Not bad for a boring non tech name! Now its trailed back down to near $130. After a huge rise from $60 to $120 in January - early July 2007, the stock has been range bound digesting this massive 100% gain for 2 full months. A nice base has been built and the stock could be ready to move again; personally I'd like to begin a position in this name but hope for a bit more of a pullback - maybe low to mid $120s. Let's look at Cummins' valuation - analysts are targeting $7.70 EPS for 2007 - this is at the high end of recently confirmed EPS guidance by the company of $7.15-$7.65. Next year? Almost $9.00. Both these numbers are up tremendously from before the last earnings report when analysts were figuring $6.45 for 2007 and $7.55 for 2008 - yet the stock price has been stagnant. Which shows you once again how the stock 'price' tells you way ahead of the 'fundamentals' changing (the huge rise in stock price in 1st half 2007). So for a company growing 15-20% (with international operations growing in excess of 30%), how is the value? Well it is not cheap, but not 'overly expensive'. At $130 we are looking at 17x 2007 estimates and 14.5 2008 estimates. The chart also looks very solid (see below) So here we have the perfect stock to play the environment for the next 18-24 months; slowing US consumer driven economy - worldwide growth in Mid and Far East regions. While no current position, I will be starting a smallish position Monday and then looking to add on a pullback of about 5-7% if possible. Thursday, 06 September 2007

In his top-performing Coolcat Report, growth and momentum expert Kevin Kennedy takes a look at Cummins (NYSE: CMI), his latest “stock of the week.” Here is his review. “Cummins (NYSE: CMI) is a diversified conglomerate of complementary business units which make and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. “Cummins operates through its network of 550 company-owned and independent distributor facilities and more than 5,000 dealer locations. Cummins reported earnings of $715 million on sales of $11.4 billion in 2006. “Second-quarter earnings reported July 26 handily beat analyst views. The company earned $2.13 per share, or $214 million, off 3% from the $2.19 per share, or $220 million, reported a year ago that was boosted by a one-time, $28-million tax gain. That easily beat expectations of $1.59 per share. Revenues increased 18% to a record $3.34 billion. “The results came despite tougher emissions requirements which have put a 45% dent in North American truck sales. Cummins' North American heavy-duty engine shipments fell 42% from a year ago, but the company is seeing good growth in its light truck segment and other business lines as well as in international markets, including a strong presence in China. “The company raised its guidance for full-year earnings from a range of $6-$6.50 per share to $7.15-$7.65. Cummins also boosted its quarterly dividend payout 39% in July from $0.18 to $0.25 per share. “The stock, which split its shares 2-1 in April, has been a strong performer and is part of our Emerging Market Leaders Portfolio. The stock is up 90% year-to-date despite falling 12% off its Aug. 1 high of 126.69. One strategy is to buy at 112 or less with a stop loss of 107.99 and a six-month target of $140-150."

19 july
Cummins Inc. (CMI) has had an unbelievable run so far this year. It is up 102% YTD versus 107% over the last 52-weeks. It is 17% above its 50-day moving average, and 58% above its 200-day. All technical measures indicate that CMI is overbought, and we should expect it to consolidate in the near future. More recently it appears that there has been some price resistance at $120, where it has made a double or even a triple top. Underlying this price resistance it ALSO appears that the stock has made a "bullish flag" since its rally on 7/9. You be the judge on the chart.

Below we also highlight some of the key fundamental facts about Cummins versus some of its peers. Despite huge gains so far this year, we would have to say that the stock is still relatively cheap.

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