Company Reports

Cummins reported lower first-quarter earnings, as we had expected. Many of the company’s end markets have cooled, given that truck production has started to normalize. Even so, we elected to increase our fair value estimate to $246 per share, up from $240 previously. The increase was primarily due to the time value of money since our last update. We also made slight tweaks to our near and long-term forecasts. In 2024, we expect Cummins’ sales to be down 4% year on year, roughly 50 basis points below the midpoint of guidance (down 2%-5%). On profitability, we forecast EBITDA margins to land at 15.0%, as pricing helps to partly offset lower volumes this year.

We believe Cummins will be the top supplier of truck engines and components, despite increasing emissions regulation. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

We believe Cummins will be the top supplier of truck engines and components, despite increasing emissions regulation. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

We lowered our fair value estimate by 3% to $240 from $248 previously, following fourth-quarter earnings. The change to our fair value is mostly due downward tweaks to our sales and margin expectations for 2024, after newly released guidance from Cummins.

We believe Cummins will be the top supplier of truck engines and components, despite increasing emissions regulation. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

We believe Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

We elected to raise our fair value estimate by nearly 1% to $255 (from $253 previously), following third-quarter earnings. The increase to our fair value is largely attributed to the time value of money since our last update but was partially offset by slight tweaks to our near-term sales and margin expectations.

We believe Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

The market sent Cummins’ shares down approximately 7% in intraday trading, following second-quarter earnings. We were encouraged by the fact that management maintained its 2023 guidance, but we think the market was focused on EBITDA margins moderating in the quarter. Consolidated EBITDA margins were down about 90 basis points to 15.1% in the second quarter. Though, there was some noise in both the second-quarter print and the year-ago period. The EBITDA margin contraction eases a bit when excluding costs related to the filtration business. The inclusion of Meritor also weighed on EBITDA margins, given its lower-margin nature compared with Cummins’ margins.

We believe Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

We believe Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

Cummins reported a solid start to 2023, largely due to solid demand for heavy-duty truck engines in North America. Engines sales for heavy-duty trucks came in at $1.1 billion in the quarter, increasing 23% year on year. A key driver here is elevated fleet ages, which is spurring many fleet owners to buy new trucks. Strong aftermarket demand was another catalyst to sales growth. Overall, the engine business grew sales by 8% year on year, landing at nearly $3 billion.

We believe Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

We believe Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

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.

We believe Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

Cummins reported solid third-quarter results, roughly in line with our expectations. As a result, our $241 fair value estimate remains unchanged. Demand remains healthy across Cummins’ end markets, except for China (affected by COVID-19-related lockdowns). Management commented on its expectations for solid market growth in 2023, thanks to high truck utilization and elevated average fleet ages. In addition, new trucks equipped with new powertrains present fleet owners with better fuel efficiency, especially during a period of higher fuel prices. For 2022, Cummins is expecting the North America on-highway engine market to come in at 260,000 units (up 15% versus 2021), near the top end of its previous guidance range.

We think Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.

Narrow-moat-rated Cummins reported solid second-quarter results. We raised our fair value estimate to $241 from $238 previously, largely due to the time value of money since our last update. Our fair value increase also accounts for slight tweaks to our 2022 sales expectations based on guidance provided by the company. We forecast the company’s sales and margins for the full year to come in slightly below management’s guidance, which calls for 8% top-line growth and 15.5% EBITDA margins.

We think Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins' strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation.