Engine maker Cummins (CMI) was always a pretty big name in its field. The company released word just recently that it was set to step into the electric vehicle market itself, thanks to a new partnership with Isuzu (ISUZF). Is this too little, too late? Or does Cummins have a good idea in the making? I’m actually mildly bullish on Cummins; there was plenty to like about the company before the move with Isuzu, and there’s just as much to like afterward.
Cummins’ year in share prices has not been especially positive. A fairly hefty loss kicked off the year, but was dwarfed by the gains that followed. The company went from around $241 on January 21 to about $224 on February 4.
Cummins recovered most of those losses by February 9, however, and started a leg up into a new plateau that lasted well into June. That, however, is when a new leg down kicked in, and Cummins dropped, threatening to go below its February lows. A recovery kicked in, but Cummins ultimately did breach those February lows in late September, cracking the $219 mark by September 20. A series of dips and recoveries followed, and now, we’re back around the numbers seen throughout the latter half of 2021.
The latest news, though, should catch some attention. Cummins is getting together with Isuzu to produce a prototype electric vehicle. Described by company materials as “…a prototype medium-duty, battery electric truck,” it’s the first such prototype the Isuzu / Cummins partnership will produce.
Wall Street’s Take
Turning to Wall Street, Cummins has a Hold consensus rating. That’s based on one Buy and three Holds assigned in the past three months. The average Cummins price target of $265.50 implies 18.9% upside potential.
Analyst price targets range from a low of $249 per share to a high of $301 per share.
A Niche Player in a Growing Market
Give Cummins credit: it’s going after the market it knows best. It’s focusing pretty intensively on trucks here, because trucks are a large part of what Cummins already does. The company even describes itself as specializing in “…diesel and alternative fuel engines and generators.”
Interestingly, much of the market focuses on consumer-grade electric vehicles. However, there’s a quieter but still vibrant market going on in transport-level electric vehicles. Reports note that BYD, Daimler and Ford (F) are all getting ready to produce both medium-duty and heavy-duty electric vehicles.
Moves from electric vehicle mainstays Rivian (RIVN) and Tesla (TSLA) are also getting ready. Major logistics operations are already in line to get in on electric delivery vehicles; a recent New York Times report wondered if anyone could actually supply all the electric delivery vehicles that Amazon (AMZN) would want.
It’s enough to make one wonder if Cummins got into this market entirely too late. The answer here: probably not. There’s a lot of interest in moving delivery and transport vehicles into electric. It’s even better if said vehicles can incorporate some level of self-driving into the mix. Truthfully, there is some debate on just how deep the trucker shortage goes. Regardless, getting more trucks into play isn’t a bad idea. That’s especially true considering the supply chain issues most of the world is facing right now, which should make Cummins especially attractive going forward.
Plus, Cummins’ dividend history also makes it worth considering. The company has not only had a regular dividend going back to 2019, it’s also been regularly increasing. Those are both good signs for anyone considering Cummins as an income play.
Concluding Views
Cummins isn’t likely to be a Tesla-killer. It also may not be able to stack up against Ford. But Cummins is a popular brand in its field, and that’s a good sign. The company has long worked in diesel and alternative fuels, and electric is about as alternative a fuel as you can get lately. It may never be more than a niche player, but considering this niche, it’s not a bad idea to be in on it.
Cummins has the potential to land a real blow in an area of an already-growing market that is itself rapidly growing. With the stock currently trading well below its lowest price targets, there’s plenty of room for upward potential here. A solid dividend, and a market that could be on the verge of exploding upward, make many investors bullish on Cummins stock.
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