Cummins Inc. CMI is scheduled to report fourth-quarter and 2018 earnings on Feb 6, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 8%. In fact, it beat estimates in all of the trailing four quarters, the average beat being 12.1%.
In the past three months, shares of Cummins have outperformed the Auto sector. The stock has gained 3.4% compared with the sector’s increase of 0.9% during the period.
Let’s see, how things are shaping up for this announcement.
Cummins Inc. Price and EPS Surprise
Cummins Inc. Price and EPS Surprise | Cummins Inc. Quote
What’s Driving Better-Than-Expected Earnings
Increased engine and component demand in North America to meet high levels of truck production will likely benefit Cummins in fourth-quarter 2018. Additionally, higher demand for on-highway and construction products in India, Europe and Latin America are expected to drive the company’s revenue generation from markets outside North America.
In North America, Cummins expects its market share in heavy-duty trucks to rise 15-17% from 2017 while medium-duty trucks’ market share is anticipated to witness annual growth of 31-34%. Further, changed government policies are expected to drive truck demand in China and India. For 2018, the company projects to sell 1.3 million units of medium and heavy-duty trucks in China, and witness record truck sales in India. It expects total revenues in 2018 to rise 15-17% from $20.4 billion recorded in the previous year.
For the soon-to-be-reported quarter, the Zacks Consensus Estimate for net sales of the company’s four segments — Engine, Distribution, Components, and Power Generation — are pegged at $2.69 billion, $2.03 billion, $1.83 billion and $812 million, respectively.
Despite such a backdrop, rising costs due to the imposition of tit-for-tat tariffs might hurt the company’s profit margin in fourth-quarter 2018. For 2018, Cummins projects tariff-related charges to add roughly $80 million in annual costs. Further, increasing R&D expenses related to the development of products in electrification and other technologies, and rising selling, general and administrative expenses are other headwinds for Cummins.
Why a Positive Surprise is Likely in This Quarter
Our proven model shows that Cummins is likely to beat earnings estimates in this quarter. This is because a stock needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for increasing the odds of an earnings beat.
Earnings ESP: Cummins has an Earnings ESP of +5.90% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $4.04 and $3.82, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Cummins currently carries a Zacks Rank #3.
Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Other Key Picks
Here are a few other stocks from the same space, with the right combination of elements to outpace earnings estimates this time around:
General Motors Company GM has an Earnings ESP of +11.39% and it currently carries a Zacks Rank #2. Its fourth-quarter 2018 results are scheduled to release on Feb 6.
O’Reilly Automotive, Inc. ORLY has an Earnings ESP of +2.01% and a Zacks Rank of 3. The company is slated to report fourth-quarter 2018 results on Feb 6.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Wabco Holdings Inc. WBC has an Earnings ESP of +2.81% and is a #3 Ranked player. Its fourth-quarter 2018 results are slated to release on Feb 15.
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