Analyst: Cummins’ Earnings Visibility Clouded By Overhang, Peaking End Markets

Ongoing uncertainty in a product campaign could act as an overhang on Cummins Inc (NYSE: CMI)’s earnings, according to Buckingham Research Group. 

The Analyst

Buckingham’s Neil Frohnapple downgraded Cummins from Buy to Neutral and lowered the stock’s price target from $205 to $160.

The Thesis

Cummins incurred a $187-million charge in the first quarter related to a “previously disclosed product campaign,” Frohnapple said in a Wednesday note. 

A final resolution could take up to six months, with the charge acting as an overhang on earnings for another two quarters, the analyst said. 

The engine manufacturer reported a Q1 adjusted EPS of $3.30 against a $2.89 estimate and sales of $5.6 billion versus a $5.14-billion estimate on Tuesday. 

Several of the company’s end markets, such as Class 8 trucks and light- and medium-duty trucks, are close to their peak, according to Buckingham. 

“As a result, we believe the risk-reward profile is more attractive for other industrials with greater earnings visibility and more cyclical upside such as Caterpillar Inc (NYSE: CAT) or more meaningful company-specific growth initiatives such as Meritor Inc (NYSE: MTOR),” Frohnapple said. 

Price Action

Cummins shares were down 4.67 percent at $146.12 at the close Wednesday. 

Related Links:

Barclays Constructs A Bullish Call On Caterpillar, CNH Industrial And Others

Barron’s Picks And Pans: Cummins, US Bancorp, US Energy Stocks And More

Photo by Travelarz/Wikimedia.