Diesel engine maker Cummins (CMI, Financial) recently reported strong results for the third quarter. The company reported an impressive increase in earnings and revenue, topping consensus estimates. Cummins is seeing strong traction for its engines. Looking ahead, management is expecting Cummins to improve. It has also posted an upbeat outlook.
Looking past the results
Cummins reported revenue of $4.9 billion topping the analysts’ estimates of $4.72 billion. On the earnings front Cummins reported that its EPS climbed nearly 15% to $4.89 which again topped consensus estimates by $0.17 per share.
Cummins is improving and showing some concrete signs for long term as well. The stock is growing which is gaining enough market share. The recently reported strong results also helped the company to further strengthen its position in the market. The stock soared by 6.9% after the company posted better than expected results. Cummins is now focused on improving its profitability further. There are many key points on which it is counting. It is under taking many strategic initiatives which it thinks will be growth drivers for it in the future.
Good growth opportunities
Cummins is seeing good growth opportunities from the North American market. With the steady economic growth, Cummins is expecting to gain much in the key markets including buses and medium-duty trucks. In addition, the heavy-duty truck market also looks in a good shape and Cummins is expecting this market to increase by 22% which will give Cummins splendid opportunities in this segment also. It is also seeing good response from the North American acquisition strategy. The company has already made four acquisition and it is expecting another three to be completed by the end of the year. Cummins is expecting these acquisitions to add incremental revenues by the end of the fiscal year.
Cummins is expecting strong performance by the global high horsepower engines as the company, after a continued two year weak performance is now seeing good growth in the segment. Cummins has also achieved certification for high horsepower generator sets and four engines from for rail and oil gas application. With such momentum, Cummins well is geared up for meeting the rising demands of the customers in this regard. If this momentum continues, Cummins is expecting to start delivering Tier 4 final System by fourth quarter. Cummins is super excited about its opportunities in the future.
International growth
On the international front, Cummins is pleased with the steady growth in regions such as China and Western Europe. However, China suffered headwinds for heavy and medium duty truck sales. But the secular growth that it is seeing with the light duty engines is off setting the negative effects of this weak sales in other segments.
Besides making the diesel engines, Cummins also manufactures natural gas engines and also does well in this segment. But the company is cautious about the future in this segment. The company thinks that the demands for these natural gas engines will remain weak in the future. Considering that, Cummins is planning to have a restructuring and take some cost cutting initiatives which can improve its margins in this challenging situation also.
In India also, Cummins is pleased with the steady growth in the power generation business. In India the government is emphasising seriously on improving the infrastructures. This is a positive thing for Cummins and it thinks that it will gain traction in the long term. However, the performance of this segment might be weak initially but it will gain good traction in the future for sure.
Conclusion
Now moving on to the fundamentals, the stock is cheap with a trailing P/E of 16.29 and the forward P/E of 13.29 shows good and steady earnings growth in future. Cummins is undoubtedly an attractive stock as its progress is good and it has also increase its dividend offering by 25% which is expected to attract more investors which will drive its market share up. In fact for the next five years, its earnings are growing at a CAGR of 13.80% which is slightly lower than the industry average of 14.12%. Considering all these points it can be seen that Cummins is a good pick as of now and the investors should definitely include Cummins in their portfolio.
