Cummins Inc. (NYSE: CMI) shares continue to trade above strong support above $200 even though UBS warned that the truck cycle is near a peak and lowered its price target on Cummins shares
UBS lowered its target on Cummins
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 fourth-quarter results despite significant constraints in the supply chain.
Total revenue has increased by 1.2% Y/Y to $5.9 billion in the fourth fiscal quarter, while the GAAP EPS was $2.73 (misses by $0.41).
The company’s management reported that full-year 2022 revenues are expected to increase by 6% compared with the prior year, while the EBITDA should also be higher.
EBITDA for the full 2022 fiscal year should be around 15.5% of sales, and it is important to say that revenues should increase in all major markets except China, where Cummins expects demand to moderate after a record year in 2021.
Despite this, UBS warned this week that the truck cycle is near a peak and lowered its price target on Cummins shares to $214 from $260. UBS added:
The North American truck cycle will come to a peak in 2023 ahead of new emissions regulations starting in 2024. We don’t expect EPS to contract much in 2024 due to growth in other parts of the business as well as margin synergies from the MTOR acquisition.
The war between Ukraine and Russia also continues to cause issues to Cummins, and the company is preparing for current and anticipated sanctions.
Cummins has an agreement with Russian truck maker Kamaz to produce engines for the company’s fleet of trucks, buses, and other heavy machinery. Kamaz is 47% owned by Russian state conglomerate Rostec and supplies parts to Russian military vehicles, but Cummins didn’t yet specify how its business would be affected.
Fundamentally looking, Cummins trades at less than ten times TTM EBITDA, the company has the ability to mitigate cost pressure vs. smaller peers amidst supply chain issues, and with a market capitalization of $29 billion, shares of this company are fairly valued.
Technically looking, Cummins shares could easily fall from the current price levels, the uncertainty of potential outcomes between Ukraine and Russia continues to worry investors, and probably it is not the best moment to buy Cummins shares.
Technical analysis
Data source: tradingview.com
The important support levels are $200 and $180; $220 represents the first resistance level. If the price falls again below $200, it would be a firm “sell” signal, and we have the open way to $180.
On the other side, if the price jumps above $220, the next target could be around $230.
Summary
Cummins is a stable company that continues to expand its business, but UBS warned this week that the truck cycle is near a peak and lowered its price target on Cummins shares to $214 from $260. The war between Ukraine and Russia also continues to cause issues to Cummins, and the company is preparing for current and anticipated sanctions.
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