For Immediate Release
Chicago, IL – June 1, 2021 – Zacks Equity Research Shares of Cummins Inc. CMI as the Bull of the Day, Sierra Wireless, Inc. SWIR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Visa Inc. V, Mastercard Inc. MA and American Express Company AXP.
Here is a synopsis of all five stocks:
Bull of the Day:
Cummins is a historic American powerhouse that makes engines and much more. The company is also expanding its New Power segment as it prepares for the broader clean energy push.
Cummins stock has already benefited from the economic comeback, alongside other cyclical areas. And its outlook appears strong after it topped our first quarter estimates in early May and raised its guidance.
All Engines Running
Cummins manufactures engines of all shapes and sizes including diesel, natural gas, electric, and hybrid powertrains. CMI also makes air handling systems, electric power generation systems, batteries, electrified power systems, hydrogen generation, and other power solutions.
Wall Street more recently has taken notice of the Indiana-based firm’s ability to help drive a cleaner energy future. These efforts include CMI’s hydrogen fuel cell technology. Cummins and other more niche green energy companies have gained traction in what has turned into a widely popular area within the renewable energy sector that could gain more steam.
Hydrogen is the simplest and most abundant element in the universe. Cummins currently “uses fuel cell and hydrogen technologies to power a variety of applications, including transit buses, semi-trucks, delivery trucks, and passenger trains to name a few.”
The company is genuinely committed to evolving within the quickly changing world where every major automaker from Ford to Volkswagen is diving headfirst into the EV space to chase Tesla. Plus, CMI stands to benefit from any infrastructure spending bill that might be passed.
More importantly, outside of any possible government spending boost, market forces and government incentives/regulation appear to be pushing the larger manufacturing, automotive, and industrial sectors to transition further and faster to cleaner alternatives. “Cummins is committed to ensuring our customers have the right solution anywhere and everywhere our customers operate by offering them a broad range of power solutions from advanced diesel, near zero natural gas, fully electric hydrogen, and other technologies,” CEO Tom Linebarger said on the company's first quarter earnings call.
“These relationships coupled with our application expertise in broad sales and service channels will position us well to manage the transition from internal combustion engines to lower carbon hybrids and eventually to zero emissions products in the future.”
Recent Results & Other Fundamentals
Cummins is coming off a great start to 2021 after it topped Q1 estimates on May 4, with revenue up 22% against the easy-to-compare period last year. CMI beat our adjusted ESP estimate by 16%, with its average beat over the trailing four quarters at 54%. And the company announced a global strategic partnership with Daimler to “provide medium duty powertrain systems for Daimler Trucks and Buses.”
More specifically, its engine unit popped 14%, with a 10% jump in North America and 24% international expansion. Meanwhile, Components revenue jumped 43%, with Power Systems sales 16% higher. And its still very small New Power business soared 250%, driven by “greater demand in transit and school bus markets in addition to the commissioning of electrolyzer projects and shipments of fuel cell systems to the rail market.”
The company raised its fiscal 2021 guidance for revenue and profitability on the back of “stronger demand across all markets.” CMI’s new outlook calls for sales to climb between 20% to 24%, up from its previous guidance of 8% to 12%.
Zacks Estimates currently project CMI’s revenue will jump 20.5% this year to reach $24.1 billion to climb above its pre-pandemic total in FY19 of $23.6 billion. Peeking ahead, the firm’s FY22 sales are projected to jump over 6% higher to $25.6 billion.
At the bottom end, its adjusted earnings are projected to climb by 33% in 2021 and another 16% in FY22. The nearby chart also showcases how much Cummins overall earnings outlook has improved.
Cummins stock is up 160% in the past five years to outpace the S&P 500’s 131% and its industry’s 110% climb. Its shares broke above its 2018 records last summer, with CMI up 55% in the last 12 months. Like most of the market, it has cooled down in 2021, but it has still outclimbed the benchmark index, up 16%.
At around $257 a share CMI trades 7% below its mid-March records and it sits below neutral RSI levels (50) at 46 right now, which gives the stock potential runway. The stock also trades at a 15% discount to its own year-long median and 30% against its highs at 15.3X forward 12-month earnings. This also comes in well below its Zacks econ sector’s 21.8X average.
Cummins positive post-release earnings revisions help it land a Zacks Rank #1 (Strong Buy) at the moment, alongside an “A” grade for Momentum and a “B” for Growth in our Style Scores system. And its 2.1% dividend yield tops the 10-year U.S. Treasury’s 1.58% and Caterpillar’s 1.71%.
Plus, CMI executives plan to return 75% of operating cash to shareholders in the form of dividends and share repurchases in 2021, which would mark a substantial increase from last year’s 52%.
Bear of the Day:
Sierra Wireless is an Internet of Things solutions provider that reported an adjusted first quarter loss on May 13 and its earnings outlook has trended in the wrong direction since then.
What’s Going On?
Sierra Wireless is an IoT solutions provider that combines devices, network services, and software. The Vancouver, Canada-based company has seen its revenue sink the past several years, with its FY20 sales down roughly 20%.
Luckily, the firm has started to bounce back, with its recently-reported Q1 sales up 5%. Its top-line growth was driven by 26% expansion in its Connectivity, Software, and Services unit.
Despite the top-line positivity, it reported an adjusted loss of -$0.26 a share, as it tries to navigate a challenging environment. “We have done well managing costs despite a tight supply chain environment and we lowered our operating expenses sequentially in the first quarter," CEO Kent Thexton said in prepared remarks.
The company also announced in March that it was the victim of a ransomware attack that forced it to temporarily halt production. SWIR has upgraded its security protocols since then.
Investors should know the firm has not officially announced a new chief executive even though Sierra Wireless announced back in January that Thexton plans to retire from his position. “The CEO search is going well, and the Board's run a strong process in many good candidates,” Thexton said on the company’s earnings call.
“They've converged on a candidate at this point and expect you'll see us make an announcement early in Q3. So I’ll likely going to be around a little bit longer than my June 30 target that I had put out there, but expect we'll make that transition.”’
Zacks estimates call for SWIR’ revenue to fall another 9% in 2021 to mark its third-straight year of declining sales. Meanwhile, it’s still projected to report an adjusted loss of -$0.54 a share, which does mark an improvement from last year’s -$1.40 loss.
Sierra Wireless has also seen its FY21 and FY22 earnings estimates trend in the wrong direction, with its consensus figures down 20% and 25%, respectively. These downward revisions help SWIR land a Zacks Rank #5 (Strong Sell) right now.
On top of that, the stock grabs “F” grades for Value and Growth in our Style Scores system and a “D” for Momentum. Plus, the stock has already popped about 16% since its report.
Will Visa (V) Gain Traction from Signs of Travel Recovery?
Visa’s business volume is set to grow with a rebound in cross-border travel, which is the slowest sector to witness signs of recovery. However, there are some green shoots that indicate people’s desire to see the world.
Cross-border is the highest margin business category for Visa. This business line has suffered since the pandemic struck, thus dragging the company’s earnings.
However, with lockdowns being lifted in several parts of the globe and successful vaccination drives gaining more momentum each passing day, wanderlust is fast catching up.
Within travel, personal trips will pick up the pace faster than corporate tours owing to significant pent-up demand. Also, corporate meetings now conducted virtually partially dampened the need for corporate travel as of now.
However, per a recent American Express report, corporate travel will be revived soon. It stated that while some meetings are easily done online, others are much more valuable when they take place face to face. Also, the U.S. workforce is yearning for in-person business connections after an extended period of remote working and monotony. 88% of business travelers believe business travel can contribute to stronger leadership skills.
It seems that business junkets are on the horizon. 83% decision makers are optimistic that business travel will return to the pre-coronavirus levels over the next two years.
While the business travel is yet to resume normalcy, personal travel is already gathering steam. Management confirmed that the decline in travel is temporary and the company is starting to see some early signs of improvement. In the second quarter of 2021, cross-border travel-related spending excluding intra-Europe noticed an uptick from the first-quarter reading, driven by two factors, which are fewer restrictions and higher spend per card.
Visa is also noticing strength in travel from countries with open borders, namely U.S.-Mexico, U.S-Lain America.
Rapid restoration of personal travel is more suitable for Visa, which derives a large chunk of its travel activities from personal rather than business. Also, the company is a global leader in travel co-brands.
A recent report by Tripadvisor, the world's largest travel guidance platform, stated that globally, nearly half (48%) of travelers are planning summer trips with more than a third (38%) staying domestic and less than one in 10 (9%) venturing out internationally.
Companies like Mastercard and American Express are also likely to see sunny days ahead with people travelling and spending more on their cards.
Year to date, the stock has gained 3.7% against its industry’s decline of 0.32%.
Visa carries a Zacks Rank #3 (Hold), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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