The bullish case for Cummins Inc. (NYSE: CMI) is based on the thesis that earnings and cash flow should stay "higher for longer," according to Citi.
Cummins' business could see an uptick from China after the country reported a better-than-expected PMI, Thein said in the Tuesday upgrade note. (See his track record here.)
Citi's proprietary construction activity indicator in China also saw a recent move higher along with March credit data, the analyst said.
The data set likely indicates a recovery in China's mining sector, which bodes well for Cummins' stock, as it's closely correlated with emerging market data points, Thein said.
Expectations for the North American heavy truck segment to peak in the fourth quarter of 2019 do not translate to "doom" for stocks like Cummins, the analyst said.
From a historical perspective, truck-related stocks tend to outperform around six to eight months after peaking, which means the case can be made for increasing exposure to truck-related stocks, he said.
Over the longer-term, the truck and auto markets will continue adopting new technologies like autonomy, connectivity and electrification, Thein said, adding that investors may be underappreciating the speed at which next-generation technology evolves.
It's resulted in multiple partnerships and joint ventures among truck and auto companies who "fear falling behind," he said.
Cummins boasts an attractive scale and distribution network that can play to its advantage ahead of upcoming CO2 caps in the U.S. and European Union, according to Citi.
Cummins shares were trading up more than 1 percent to $166.69 at the time of publication Tuesday.
Benzinga's Top Upgrades, Downgrades For April 16, 2019
Oppenheimer Downgrades Cummins, Projects Softening North American Truck Market In 2020
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