Wells Fargo Upgrades Cummins (CMI) to Outperform

February 7, 2014 6:50 AM EST
Get Alerts CMI Hot Sheet
Price: $233.05 +1.74%

Rating Summary:
    13 Buy, 23 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 22 | Down: 13 | New: 29
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Wells Fargo upgraded Cummins (NYSE: CMI) from Market Perform to Outperform and raises its valuation range to $168.00-$171.00 from $133.00-$136.00.

"Based on likely completion of multiple year cycle of guidance cuts, anticipated positive inflection in end market demand, above market growth (driven by content gain, share gain and distribution consolidation), improved cost structure and sustained capital redeployment to shareholders including management’s 2014 commitment to return $1 billion to shareholders (i.e., $5.40 or 4.1% yield through dividend/share repurchase), we are upgrading the shares to Outperform from Market Perform and increasing our valuation range to $168-171 from $133-136," analyst Andrew Casey said.

He added, " Since the NAFTA Class 8 backlog-to-inventory ratio went below 2 in Q2 2012, CMI has performed largely in line with the S&P 500. However, we expect conditions are turning positive for prolonged outperformance from a combination of internal growth drivers with anticipated end market improvement. NAFTA backlog-to-inventory ratio is signaling sustained production increases. US non-residential markets appear likely to improve, and developing market demand likely bottoms during H1 2014. We expect earnings power to increase through 2014 and 2015 along with sustained capital re- deployment to shareholders. While we are decreasing near-term earnings power, we expect earnings power to progressively increase through 2014 and 2015."

The firm is decreasing Q1 2014E to $1.50 from $1.97 and 2014E to $8.70 from $9.10 (at high end of implied $8.10-8.80 guidance) and raising 2015E to $11.30 from $10.65.

For an analyst ratings summary and ratings history on Cummins click here. For more ratings news on Cummins click here.

Shares of Cummins closed at $130.78 yesterday.


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