Cummins Management Not Losing Focus On Capital Allocating Discipline

BMO met with Cummins Inc CMI this week to gauge the company's 2017 sales expectations, as well as capital allocation strategies and thoughts on end markets.

BMO feels that opportunity for longer-term investors lies in game changing M&A opportunities and maintaining long-term returns.

Amid a weak environment, BMO said Cummins "continues to find creative ways to reduce cost and improve margin."

In terms of capital allocation, the company is likely to raise the dividend and repurchase shares "as a cushion to deliver at least flat EPS if 2017 turns out to be more challenging than expected."

Cummins is aware its capital allocation strategy is under heavy scrutiny, and is "focused on both finding the right longer term acquisition that can really change its playing field, as well as not overpaying and undermining longer term returns."

BMO has a Market Perform rating on Cummins with a $114 price target.