Stifel: We're Downgrading Cummins

In a report published Wednesday, Stifel analysts downgraded the rating on Cummins Inc. CMI from Buy to Hold, saying that the upcoming data points could adversely impact investor sentiment. The analysts believe that several factors, including "declining Class 8 equipment orders, lower than anticipated market share in the Class 8 market, and continued international headwinds, may impair investor sentiment and continue to put pressure on the shares." The slowdown in monthly Class 8 equipment orders could be higher than is seasonally normal during the Spring and Summer. This slowdown may be on account of "fewer available build slots remaining for the year than what is typical seasonally." With pricing being finalized for 2016 production only in late 3Q or early 4Q, monthly reported orders in the interim "could disappoint to the downside and put pressure on Cummins and the tractor OEMs," the analysts wrote. In the report Stifel noted, "Cummins has stated on recent analyst calls that despite the vertical integration efforts of the North American Class 8 OEMs, the company expects its share of Class 8 engines to remain within the range of 35%-40%. Recent data points from Wards Automotive show, that while still within that range, Cummins' share of engines has trended toward the low end of that range, with a 35% market share YTD (down from 38% for 2014)." The analysts expect investor sentiment to be adversely impacted if Cummins announced a downward revision of its near-term market share target from 35-40 percent.