Ongoing uncertainty in a product campaign could act as an overhang on Cummins Inc (NYSE:CMI)’s earnings, according to Buckingham Research Group.
The Analyst
Buckingham's Neil Frohnapple downgraded Cummins from Buy to Neutral and lowered the stock’s price target from $205 to $160.
The Thesis
Cummins incurred a $187-million charge in the first quarter related to a “previously disclosed product campaign," Frohnapple said in a Wednesday note.
A final resolution could take up to six months, with the charge acting as an overhang on earnings for another two quarters, the analyst said.
The engine manufacturer reported a Q1 adjusted EPS of $3.30 against a $2.89 estimate and sales of $5.6 billion versus a $5.14-billion estimate on Tuesday.
Several of the company’s end markets, such as Class 8 trucks and light- and medium-duty trucks, are close to their peak, according to Buckingham.
“As a result, we believe the risk-reward profile is more attractive for other industrials with greater earnings visibility and more cyclical upside such as Caterpillar Inc (NYSE:CAT) or more meaningful company-specific growth initiatives such as Meritor Inc (NYSE:MTOR),” Frohnapple said.
Price Action
Cummins shares were down 4.67 percent at $146.12 at the close Wednesday.
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