Cummins Inc. (NYSE: CMI) shares have weakened from their record highs above $270 registered in March 2021, and the current price stands around $218.
UBS reported this week that it remains constructive on the machinery sector for 2022 and assigned a buy rating on Cummins shares.
UBS has a positive view of Cummins
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Cummins is an American multinational corporation that manufactures and distributes engines, filtration, and power generation products.
Cummins sells its products in more than 190 countries, and the company reported solid third-quarter results despite significant constraints in the supply chain.
Total revenue has increased by 17% Y/Y to $6 billion in the third fiscal quarter, while the GAAP EPS was $3.69 (misses by $0.20).
The company’s management lowered financial guidance for the full fiscal year and announced that revenues are expected to increase by 20% compared with the prior year.
The prior guidance was in the range between 20% to 24%, and the major reason for the lower projection is the ongoing supply chain challenges in the industry. Tom Linebarger, CEO of Cummins, added:
Demand remained strong in the third quarter as the global economy continued to improve, driving strong sales growth across most businesses and regions outside of China. Unfortunately, supply chain constraints continue to significantly impact our ability to produce and ship products, driving up costs and limiting sales growth in the short run.
EBITDA for the full fiscal year should be around 15% of sales, and it is important to mention that Cummins expects to return more than 75% of operating cash flow to shareholders in 2021 in the form of dividends and shares repurchases.
The positive news is that UBS reported this week that the machinery, construction, and engineering sector should benefit despite the tighter fed policy, as supply chain issues and falling raw material prices should stabilize.
Cummins continues to invest in projects to drive increased cash flow, and UBS assigned a buy rating on Cummins shares.
Fundamentally looking, Cummins trades at approximately ten times TTM EBITDA, and with a market capitalization of $31 billion, shares of this company are fairly valued.
$250 represents important resistance
Cummins’s stock price fell more than 20% after reaching its record level of $277,09 on March 16.
The crucial support level stands at $200, and if the price falls below this level, it would be a strong “sell†signal.
On the other side, if the price jumps above $250 resistance, it would signal trading shares, and the next target could be at $270 or even above.
Summary
Cummins reported solid third-quarter results despite significant constraints in the supply chain; still, the company’s management lowered financial guidance for the full fiscal year. UBS reported this week that it remains constructive on the machinery sector for 2022 and assigned a buy rating on Cummins shares.
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