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Cummins (CMI) Strikes Deal With Hino, Hits 52-Week High
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Cummins’ (CMI - Free Report) shares touched a 52-week high of $276 yesterday to close the session a tad lower at $275.99, reflecting an increase of 0.76%. Shares moved up after the Japan-based truck maker Hino Trucks announced plans to equip medium- and heavy-duty trucks with Cummins’ engines. Hino is set to offer Cummins B6.7™ and L9™ engines in its L and XL Series models by the end of 2021.
Production of the trucks is expected to commence at the West Virginia and Woodstock plant in October 2021 with the deployment of engines developed by Cummins at the Rocky Mount Engine Plant in North Carolina. Both the firms will continue to assess additional opportunities for collaboration on powertrain strategies in the coming years.
Will the Run Continue?
Shares of the engine manufacturer have rallied 101.7% over the past year. The positioning of Cummins — whose major customers include Daimler AG , PACCAR (PCAR - Free Report) and Navistar — as a global power leader with a dominant market and commitment to move toward a carbon neutral future is set to further buoy its prospects. Technology leadership, an impressive product portfolio, strong geographic diversification and a broad global distribution network offer ample growth visibility.
In line with the changing auto industry dynamics amid climate concerns, Cummins’ efforts and investments to ramp up its capabilities in fuel cell and hydrogen production technology are praiseworthy. The acquisition of Hydrogenic Corp has revved up Cummins’ ability to innovate hydrogen fuel-cell technologies across commercial markets. Investment in Loop Energy and partnership with NPROXX has also expanded Cummins’ fuel cell and hydrogen-processing technology capabilities. Collaboration with Isuzu Motors is driving innovation in advanced diesel and other technology solutions.
Investors are also optimistic about its upbeat 2021 sales guidance. Cummins projects full-year 2021 revenues to be up 8-12% year over year, driven by an increase in heavy duty and medium-duty truck production in North America, Europe and India. Revenues in Engine, Distribution, Components, Power and New Power segments are expected to witness year-over-year growth in the band of 10-14%, 6-10%, 9-13%, 7-11% and 53-80.5%, respectively.
Its strong financials and investor-friendly moves are also encouraging. The company’s cash & cash equivalents at 2020-end were $3.4 billion, up from the year-ago level of $1.1 billion. While debt levels rose from 2019 levels, leverage still stands at 29%, which offers the firm ample financial flexibility. As it is, the company carries investment grade credit ratings of A+ and A2 from Standard & Poor’s and Moody. Importantly, the firm returned 52% of operating cash flow in the form of share repurchases and dividends in 2020, and expects the levels to surge to 75% in 2021.
Retain the Stock in Your Portfolio
While several factors favor the stock, we remain concerned of the rising capex, and high launch and operating costs that may dent overall margins. Cummins expects 2021 capex in the band of $725-$775 million, indicating an increase from $528 million spent in 2020, which will limit cash flows. Expenses are expected to increase in the coming quarters amid launch of on-highway products that comply with emission regulations. Especially, its New Power segment is suffering from continuous losses amid high product and technology-related expenses. The segment incurred an operating loss of $172 million in 2020, and is likely to bear the brunt of higher R&D costs in 2021.
Nonetheless, rising costs are just a small headwind in the way of Cummins’ prospects, which look bright courtesy of its clean balance sheet, and ramped up capabilities in fuel cell and hydrogen production technology. The stock has a long-term expected EPS growth rate of 8%. The Zacks Consensus Estimate for 2021 and 2022 earnings implies year-over-year growth of 16.3% and 17%, respectively. As such, investors are advised to retain this Zacks Rank #3 (Hold) in their portfolio for further gains. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Cummins (CMI) Strikes Deal With Hino, Hits 52-Week High
Cummins’ (CMI - Free Report) shares touched a 52-week high of $276 yesterday to close the session a tad lower at $275.99, reflecting an increase of 0.76%. Shares moved up after the Japan-based truck maker Hino Trucks announced plans to equip medium- and heavy-duty trucks with Cummins’ engines. Hino is set to offer Cummins B6.7™ and L9™ engines in its L and XL Series models by the end of 2021.
Production of the trucks is expected to commence at the West Virginia and Woodstock plant in October 2021 with the deployment of engines developed by Cummins at the Rocky Mount Engine Plant in North Carolina. Both the firms will continue to assess additional opportunities for collaboration on powertrain strategies in the coming years.
Will the Run Continue?
Shares of the engine manufacturer have rallied 101.7% over the past year. The positioning of Cummins — whose major customers include Daimler AG , PACCAR (PCAR - Free Report) and Navistar — as a global power leader with a dominant market and commitment to move toward a carbon neutral future is set to further buoy its prospects. Technology leadership, an impressive product portfolio, strong geographic diversification and a broad global distribution network offer ample growth visibility.
In line with the changing auto industry dynamics amid climate concerns, Cummins’ efforts and investments to ramp up its capabilities in fuel cell and hydrogen production technology are praiseworthy. The acquisition of Hydrogenic Corp has revved up Cummins’ ability to innovate hydrogen fuel-cell technologies across commercial markets. Investment in Loop Energy and partnership with NPROXX has also expanded Cummins’ fuel cell and hydrogen-processing technology capabilities. Collaboration with Isuzu Motors is driving innovation in advanced diesel and other technology solutions.
Investors are also optimistic about its upbeat 2021 sales guidance. Cummins projects full-year 2021 revenues to be up 8-12% year over year, driven by an increase in heavy duty and medium-duty truck production in North America, Europe and India. Revenues in Engine, Distribution, Components, Power and New Power segments are expected to witness year-over-year growth in the band of 10-14%, 6-10%, 9-13%, 7-11% and 53-80.5%, respectively.
Its strong financials and investor-friendly moves are also encouraging. The company’s cash & cash equivalents at 2020-end were $3.4 billion, up from the year-ago level of $1.1 billion. While debt levels rose from 2019 levels, leverage still stands at 29%, which offers the firm ample financial flexibility. As it is, the company carries investment grade credit ratings of A+ and A2 from Standard & Poor’s and Moody. Importantly, the firm returned 52% of operating cash flow in the form of share repurchases and dividends in 2020, and expects the levels to surge to 75% in 2021.
Retain the Stock in Your Portfolio
While several factors favor the stock, we remain concerned of the rising capex, and high launch and operating costs that may dent overall margins. Cummins expects 2021 capex in the band of $725-$775 million, indicating an increase from $528 million spent in 2020, which will limit cash flows. Expenses are expected to increase in the coming quarters amid launch of on-highway products that comply with emission regulations. Especially, its New Power segment is suffering from continuous losses amid high product and technology-related expenses. The segment incurred an operating loss of $172 million in 2020, and is likely to bear the brunt of higher R&D costs in 2021.
Nonetheless, rising costs are just a small headwind in the way of Cummins’ prospects, which look bright courtesy of its clean balance sheet, and ramped up capabilities in fuel cell and hydrogen production technology. The stock has a long-term expected EPS growth rate of 8%. The Zacks Consensus Estimate for 2021 and 2022 earnings implies year-over-year growth of 16.3% and 17%, respectively. As such, investors are advised to retain this Zacks Rank #3 (Hold) in their portfolio for further gains. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
AccessZacks Top 10 Stocks for 2021 today >>