Shares of Cummins Inc. CMI have surged 11 percent year-to-date versus a 9-percent appreciation for the S&P 500.
The company’s FY19 guidance reflects fewer internal catalysts for improvement as well as a mixed macro environment, according to Oppenheimer.
The Analyst
Oppenheimer’s Noah Kaye downgraded Cummins from Outperform to Perform and removed the previous price target.
The Thesis
Cummins reported fourth-quarter earnings per share Wednesday of $3.63, missing the consensus expectation of $3.81. Although revenue was higher than expected, the company’s quarterly margin and consolidated EBITDA were below the consensus estimates.
Management guided to FY19 revenue growth of 0-4 percent.
The guidance reflects strength in North America and Brazil being offset by mixed markets in China and flattish conditions in Europe and India, Kaye said in a Thursday note.
It's increasingly likely that the North American truck market will come under pressure in 2020 given recent Class 8 truck order cancellation trends, the analyst said. The off-highway markets could suffer decelerating growth, and there is uncertainty around how China’s NS6 enforcement will impact FY19-20, he said.
Other challenges include lower visibility into the ROI from electrification investments in the medium term and internal pressure on margin expansion, Kaye said.
Oppenheimer raised the EPS estimate for FY19 from $15.28 to $15.81 to reflect a lower tax rate. The EPS estimate for FY20 has been reduced from $14.95 to $14.89.
Price Action
Cummins shares were down 0.31 percent at $148.93 at the time of publication Thursday.
Related Links:
Benzinga's Top Upgrades, Downgrades For February 7, 2019
Photo courtesy of Cummins.
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