- Shares of Cummins Inc CMI have been steadily declining in the past one year and are down 41 percent.
- Longbrow Research’s Neil Frohnapple maintained a Neutral rating on the company.
- Frohnapple expects Cummins to continue losing market share due to vertical integration from truck OEMs. Analyst Neil Frohnapple mentioned that Cummins is expected to continue losing share to OEMs’ internal engine offerings. A survey of PACCAR Inc PCAR contracts showed that the installation rate of its proprietary MX engines would rise to the mid-to-high 40 percent range on average in 2016.
Since PACCAR is Cummins’ largest customer, this indicates a potential decline in Cummins’ share, the analyst added.
“Furthermore, our Freightliner contacts expect CMI's heavy-duty share within their trucks to decline to a range of 10-15% on average in 2016 (vs. 15.3% YTD in 2015),” Frohnapple stated, adding that Cummins’ NAFTA Class 8 Group 2 (>10L) share could also cline below its projected “low 30%” range in 2016.
Frohnapple believes that the North American commercial truck market, which is Cummins’ largest market, would decline significantly in 2016. The analyst also expects the company’s market share in medium and heavy duty trucks to decline during the year due to increased vertical integration.
Cummins’ earnings are also likely to be hit by the weakness in the international markets and FX headwinds, the Longbrow Research report mentioned, adding that the company’s already announced restructuring program would aid profitability in 2016.
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