Cummins' Path Forward: Analyst Highlights Impact of Emission Settlement And 2027 Market Dynamics

Truist Securities analyst Jamie Cook initiated coverage on the shares of Cummins Inc CMI with a Hold rating and a price target of $303.

Cummins manufactures diesel engines globally for the commercial vehicle markets, including heavy, medium, and light duty, as well as buses and motorhomes and off-highway markets, noted the analyst.

The company's capital allocation story is on hold as it was recently fined $2 billion after settling with U.S. regulatory agencies relating to emission issues on Dodge Ram trucks. 

Related: Cummins Faces Hefty $2B Penalty And Over 600K Recalls In Ram Trucks Emissions Violation Case

The analyst sees free cash going to paying down debt associated with the Meritor acquisition and rebuilding cash on the balance sheet versus cash returns to shareholders.

The analyst expects a substantial pre-buy ahead of the 2027 emissions change for trucks, and given the anticipated significant cost increase, this implies 2025 and 2026 should see solid growth.

CMI has won considerable share in the medium duty overseas market as major customers have outsourced their engines to Cummins permanently, noted the analyst.

The transition to CMI could add at least $2.50 in EPS Power depending on industry volumes.

The price target of $303 assumes 9X EV/EBITDA on the analyst's 2025 EBITDA estimates and 16X 2025 P/E multiple discounted back.

Price Action: CMI shares are trading lower by 2.66% at $263.07 on the last check Thursday.

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