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Cummins (CMI) Raised To 'Outperform' By BMO Capital, PT Increased

 November 08, 2012 02:36 PM

(By Balachander) Cummins Inc. (NYSE: CMI) shares were raised to "outperform" from "market perform" and the price target increased to $120 from $79 by BMO Capital Markets.

"Global growth seems to be stabilizing here with a slight upward bias and we continue to be attracted by pent-up demand in the developed countries' truck markets, which should drive higher EPS over the next two years," the brokerage wrote.

"While we are unsure if the shares will appreciate considerably if 2013 EPS are down, Cummins' operational leverage to any economic or end-market improvement is substantial, with our EPS estimate possibly more at a downside risk level," BMO said.

[Related -Russia Upsets The Potash Cart]

BMO maintained its 2012, 2013 and 2014 EPS estimates of $8.35, $7.90 and $7.70, respectively as it attempts to capture the downside risk to profitability in a flat to slowly declining global economic environment.

"While we view downside risk at around $70 (18x $4 of trough EPS), upside potential remains substantial, approaching $180 (13x $14 of peak EPS), making the stock extremely attractive for longer-term shareholders," the brokerage wrote.

"Despite all of the improvements in operations, costs, geographic balance, and market share gains, we fear that Cummins results will be wagged by global macro more than any internal initiatives," BMO wrote.

On Thursday, shares of the maker of diesel engines dropped 1.30 percent to trade at $96.85. The stock has been trading in the 52-week range of $82.20 to $129.51.



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