Cummins Reports Better-than-Expected Q2 Results; Shares Rise

Cummins Inc. (CMI), a manufacturer of diesel and natural gas engines, reported better-than-expected second-quarter results backed by strong demand across all global markets. Shares rose over 1.7% to close at $233.05 on August 3.

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The company reported earnings of $4.10 per share, increasing by a whopping 120% compared to the year-ago period. The result surpassed the Street’s estimate of $4.03 per share.

Additionally, revenue climbed 59% year-over-year to $6.11 billion, beating analysts’ estimates of $5.99 billion. (See Cummins stock charts on TipRanks)

Cummins announced that it is considering strategic alternatives for its Filtration business, which might include a sale or spin-off into a separate stand-alone business.

Cummins CEO Tom Linebarger stated, “We expect that the strategic alternatives we are considering will result in enhanced value for our stakeholders, and position Cummins Filtration to take advantage of enhanced opportunities to invest in organic and inorganic growth.”

For full year 2021, Cummins forecasts year-over-year revenue growth of 20%-24%. On top of this, the company expects to return 75% of its operating cash flow to shareholders in the form of dividends and share buybacks in 2021.

Following the Q2 earnings release, Cowen & Co. analyst Matt Elkott reiterated a Buy rating on the stock with a price target of $284, implying 21.9% upside potential to current levels.

Elkott noted, “CMI beat Street expectations modestly top to bottom. It reiterated its 2021 guidance, whose revenue and EBITDA midpoints are just above consensus. The company is evaluating strategic alternatives for its filtration business, including separating it into a stand-alone company.”

Overall, the stock has a Moderate Buy consensus rating based on 5 Buys and 8 Holds. The average Cummins price target of $288.91 implies 24% upside potential to current levels. Shares have gained 20.8% over the past year.