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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Cummins

February 11th 2011 Cummins
NYSE Symbol: CMI
Industry: Engines and generators
Price as of 2/11: $111.70


Slow and steady wins the race. That's a good analogy for the markets this year that seem to go up virtually every day. I personally think it would be a little healthier to have a couple down days here and there, but the markets rarely do what you want. Pretty much every sector is working this year. Everyone is bullish on the markets yet everyone also wants a pullback. Goldman Sachs put out a research report this week recommending Industrial stocks including our featured stock of the week, Cummins. The maker of diesel and gas engines along with engine components and electric power systems has witnessed a revival in business. The rebirth of the US auto industry along with expansion overseas has boosted profits dramatically resulting in a stock price that has more than doubled in the last year. But even with the run up, Goldman Sachs believes there is more room to the upside with a price target of $135 a share. Cummins is not a cheap stock, but a compelling investment with great growth prospects going forward.

Back on February 1st, Cummins earned $362 million, or $1.84 per share, easily beating estimates of $1.71 a share, up from $270 million, or $1.36 per share, during the same period a year earlier. Revenue rose 21.7% to $4.14 billion. Full-year net income more than doubled to $1.04 billion, or $5.28 per share, from $428 million, or $2.16 per share in 2009. Looking forward, Cummins is forecasting sales to grow of 25% in its Engine and Components segments for 2011, led by a recovery in the North American truck markets. The co expects sales to increase by 15% in both its Power Generation and Distribution segments, driven by improving markets in North America and continued strength in key international markets. The company is experiencing strong growth in China, India, and Brazil. Demand in China was especially strong in second tier cities. Cummins feels optimistic about both long and short-term opportunities in China using India as an engine manufacturing base to export to Asia and the Middle East. In 2011, Cummins has aggressive plans to continue expand while also taking advantage of profitable trends, such as continued growth in infrastructure demand.

Just this week Cummins added a billion dollars to their stock repurchase program which is one of the reasons Goldman likes the stock. In the fourth quarter alone the share float decreased by 1%, marginally improving earnings per share. Goldman also raised their earnings estimates for Cummins above consensus. Current consensus estimates are for $7.18 a share for 2011 and $8.70 for 2012. Goldman is looking for $7.59 a share and $9.15 a share for 2012. Based on these estimates, Cummins is trading for 14 times 2011 estimates and 12 times next years' estimates. The stock also trades for 1.6 times sales, 4 times book value, and has more cash than debt on their books. The company also provides a modest 1% dividend yield. The future looks bright for Cummins. Investors looking for a growth stock benefitting from the revival of the auto industry and economic expansion overseas should take a look at this stock.