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Tuesday, UBS analysts lowered the price target on Cummins (NYSE:CMI) shares to $400 from the previous $432, while still endorsing a Buy rating for the company. Currently trading at $322.81, Cummins remains a prominent player in the Machinery industry with a market capitalization of $44.4 billion. The revision reflects a more cautious stance towards the truck market recovery, with UBS citing concerns over the North American truck business amidst economic uncertainties and regulatory ambiguity. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculation.
The UBS analyst noted that weaker industry order activity observed in February is likely a result of heightened uncertainty, which could dampen freight demand. In light of these concerns, UBS has adjusted its earnings per share (EPS) estimates for Cummins for the years 2025 and 2026 downwards by 6% and 7%, respectively. The revised estimates account for anticipated lower earnings in the Engine/Components segment. InvestingPro data shows the company maintains strong fundamentals with a ’GOOD’ overall financial health score and an impressive Piotroski Score of 8, suggesting robust operational efficiency despite market challenges.
Despite these challenges, UBS believes there are still reasons to be positive about Cummins’ stock. The analyst pointed out that the company’s earnings could benefit from margin improvements and growth in the Power Generation (HM:PGV) (Power Gen) sector, which they feel is currently undervalued by the market. Key margin initiatives identified include reductions in research and development spending as investments in 2027 engine models wind down, price increases and favorable product mix in the Power Gen segment, further optimization of recently acquired Meritor (NYSE:MTOR), scaling back investments in Accelera, and overhead cost reductions. Additionally, the introduction of new engine models is expected to provide a mix benefit.
However, these positive margin drivers could be partly negated by potential increases in warranty provisions for new engines and inflationary pressures resulting from tariffs. The analyst’s commentary underscores the balance of risks and opportunities Cummins faces as it navigates through industry headwinds and strategic initiatives.
In other recent news, Cummins Inc . reported earnings of approximately $3.9 billion on sales of $34.1 billion in 2024. The company also announced a quarterly dividend of $1.82 per share, reflecting its commitment to returning value to shareholders. Cummins has recently acquired key assets from First Mode, focusing on retrofit hybrid solutions for mining and rail operations to advance decarbonization efforts. Additionally, Cummins unveiled its new X10 engine, designed to replace existing platforms with enhanced performance and efficiency, as part of its HELM™ series. The Environmental Protection Agency’s reassessment of vehicle-emissions rules has raised concerns about potential impacts on Cummins’ 2026 earnings expectations. In leadership news, Chief Administrative Officer Sharon Barner will retire on May 31, after a significant tenure that included guiding the company through major acquisitions. Cummins plans to announce Barner’s successor soon.
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