Cummins Reports Solid Fourth-Quarter Results, Showing Demand Remains Solid to Close Out 2022

Following Cummins’ fourth-quarter results, we elected to raise our fair value estimate to $256 from $241 previously. The main driver to our fair value raise was better-than-expected 2023 guidance from management. While trucking markets have cooled in 2022 from strong levels, we think Cummins is benefitting from the higher average fleet age of heavy-duty trucks globally. The company’s guidance also bakes in its recent acquisition of Meritor ($3.7 billion deal), a supplier of axles, brakes, and electric vehicle systems. Cummins expects the business to add between $4.5 billion and $4.7 billion in revenue this year, with an EBITDA margin range of 10.3%-11%. Initially, we liked the deal because we think Meritor will bolster Cummins’ powertrain offering for fleet owners. Furthermore, we think management will be able to improve Meritor’s low-double-digit margin profile over time, bringing its profitability closer to Cummins’ components business.