Thursday, May 6, 2010

Bookkeeping: Restarted Cummins (CMI) After Great Quarter

As stated coming into the week I want to redeploy some funds from weaker areas to stronger, and diversify the portfolio into sectors I have had little exposure to. One such area is industrials. This is not normally an area I ply except for a few names, and Cummins (CMI) is one of them. While an American global corporation, this engine company definitely gives a nice exposure to emerging Asia, as they were in India and China before it was fashionable. [Sep 23, 2007: Stock to Watch: Cummings Hitting on all Cylinders] Unfortunately, the company still has heavy exposure to the U.S.

Technically, the stock spiked 2 weeks ago in a stellar quarter and I thought "missed another one". But with the market weakness it has come back to "fill the gap" and now sits at the 20 day moving average. I am hoping this first purchase of a 0.6% exposure under $69 is a 'loser' and the stock drops a more - at least to the 50 day ($64s) where I'd be adding. If that support breaks I will have to reassess but for that to happen I think this selloff will need to be of the '8 to 10%' variety. Which certainly can happen. If so, purchase in the low to mid $50s should be very possible. For today I just went to create a starter stake and this purchase is more on fundamentals than technicals.

Fundamentally, this might have been one of the best 'beats' of the quarter on the bottom line (40 cents) as a huge amount of costs (read: human beings) were taken out the past few years [Feb 11, 2009: WSJ - Cummins Engine Shifts Gears Amid Stall] (Full report here).

EPS estimates for 2010 have been raised from $2.49 (30 days ago) to $3.10 (7 days ago before quarter) to $3.53. 2011 is currently over $5.11. Of course if the world goes into a new tailspin we know these numbers mean nothing but for now it is what it is.

  • Engine maker Cummins Inc. Tuesday reported sharply higher first-quarter profits on improved sales in fast-recovering markets like China and India, and the effect of restructuring charges in the year-ago quarter. The company also raised its 2010 sales forecast.
  • The company said it earned $149 million, or 75 cents per share, up from $7 million, or 4 cents per share, in the first quarter of 2009, when it posted restructuring charges of $66 million. Sales rose to $2.48 billion, up 2 percent from $2.44 billion. Analysts surveyed by Thomson Reuters expected quarterly earnings of 35 cents per share on revenue of $2.42 billion, on average.
  • Cummins said that three of its four business divisions showed improved profits in the quarter. The biggest improvement was in the engine and components unit.
  • Cummins saw a higher demand for its products in China, India and Brazil, primarily among manufacturers of trucks, construction and power-generation equipment.
  • One weakness for Cummins remains the North American market.
  • For all of 2010, Cummins now expects sales of $12 billion, up from prior guidance of $11 billion. Analysts expect $11.32 billion of sales.

Long Cummins in fund; no personal position

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