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Cummins (CMI) Slips to 52-Week Low: What's Dragging it Down?
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The massive broader market selloff due to oil price crash and coronavirus fears has sent a jolt across the auto industry, with various stocks — including auto biggies like General Motors (GM - Free Report) , Ford (F - Free Report) and Fiat Chrysler — hitting new 52-week lows yesterday. Shares of Cummins Inc. (CMI - Free Report) slipped to a 52-week low of $127.07 during the trading session on Mar 12, before closing a tad higher at $129.09. On a year-to-date basis, the stock has declined around 28%. The deadly virus has further taken a toll on the stock amid the already challenging trucking market.
Let’s delve deeper into the factors that have been plaguing the stock. Cummins currently carries a Zacks Rank #4 (Sell).
Cummins has significant exposure in China, wherein it operates its largest joint ventures including the Beijing Foton Cummins Engine Company, the Dongfeng Cummins Engine Company and the Chongqing Cummins Engine Company. The company owns at least five major factories in the country, with two in Wuhan — the epicenter of the coronavirus outbreak. With China imposing a lockdown in Wuhan, Cummins’ shares started falling drastically. Lower demand in global construction markets and soft light duty truck demand in China amid trade tussle and weak economy will dent its revenues in China-based markets. In China, the company projects domestic revenues — including joint ventures — to be down 7% year over year in 2020.
With Cummins being the largest independent engine manufacturer in the world, contracting demand for heavy trucks is likely to mar the company’s prospects. Industry truck production declined 29% year over year in 2019 and the trend is likely to continue in 2020 as well. Cummins currently anticipates a reduction of 10% in heavy and medium-duty truck demand, and flat demand in the light-duty truck market in 2020.
Industry production for heavy-duty trucks in North America is projected to be 185,000 units in 2020, indicating a 40% year-over-year decrease. Given continued weak freight activity, the company expects orders to remain weak in 2020, which will result in excess capacity and lower used truck market prices. The company anticipates the size of the medium-duty truck market to be 123,000 units, suggesting a 20% decrease from 2019, after several years of strong demand. Its engine shipments for pickup trucks in North America are also expected to be down 10% compared with a very strong 2019.
Cummins’ construction demand declined 34% year over year in 2019. It anticipates construction, mining, and oil and gas markets to experience double-digit declines in 2020, which will limit the firm’s prospects. Power generation markets are also likely to decline 5-10%.
Amid the headwinds, the firm projects year-over-year revenue decline of 8-12% in 2020. The company is battling with elevated expenses, owing to rising R&D expenses for product development and high material costs. In 2019, it reported R&D expenses of $271 million, depicting an increase from the prior-year figure of $244 million. Further, expenses are expected to increase in the coming quarters for launching on-highway products that comply with emission regulation. Additionally, tariff-related commodity costs and fluctuating foreign currencies will likely hamper Cummins’ margins.
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Cummins (CMI) Slips to 52-Week Low: What's Dragging it Down?
The massive broader market selloff due to oil price crash and coronavirus fears has sent a jolt across the auto industry, with various stocks — including auto biggies like General Motors (GM - Free Report) , Ford (F - Free Report) and Fiat Chrysler — hitting new 52-week lows yesterday. Shares of Cummins Inc. (CMI - Free Report) slipped to a 52-week low of $127.07 during the trading session on Mar 12, before closing a tad higher at $129.09. On a year-to-date basis, the stock has declined around 28%. The deadly virus has further taken a toll on the stock amid the already challenging trucking market.
Let’s delve deeper into the factors that have been plaguing the stock. Cummins currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cummins has significant exposure in China, wherein it operates its largest joint ventures including the Beijing Foton Cummins Engine Company, the Dongfeng Cummins Engine Company and the Chongqing Cummins Engine Company. The company owns at least five major factories in the country, with two in Wuhan — the epicenter of the coronavirus outbreak. With China imposing a lockdown in Wuhan, Cummins’ shares started falling drastically. Lower demand in global construction markets and soft light duty truck demand in China amid trade tussle and weak economy will dent its revenues in China-based markets. In China, the company projects domestic revenues — including joint ventures — to be down 7% year over year in 2020.
With Cummins being the largest independent engine manufacturer in the world, contracting demand for heavy trucks is likely to mar the company’s prospects. Industry truck production declined 29% year over year in 2019 and the trend is likely to continue in 2020 as well. Cummins currently anticipates a reduction of 10% in heavy and medium-duty truck demand, and flat demand in the light-duty truck market in 2020.
Industry production for heavy-duty trucks in North America is projected to be 185,000 units in 2020, indicating a 40% year-over-year decrease. Given continued weak freight activity, the company expects orders to remain weak in 2020, which will result in excess capacity and lower used truck market prices. The company anticipates the size of the medium-duty truck market to be 123,000 units, suggesting a 20% decrease from 2019, after several years of strong demand. Its engine shipments for pickup trucks in North America are also expected to be down 10% compared with a very strong 2019.
Cummins’ construction demand declined 34% year over year in 2019. It anticipates construction, mining, and oil and gas markets to experience double-digit declines in 2020, which will limit the firm’s prospects. Power generation markets are also likely to decline 5-10%.
Amid the headwinds, the firm projects year-over-year revenue decline of 8-12% in 2020. The company is battling with elevated expenses, owing to rising R&D expenses for product development and high material costs. In 2019, it reported R&D expenses of $271 million, depicting an increase from the prior-year figure of $244 million. Further, expenses are expected to increase in the coming quarters for launching on-highway products that comply with emission regulation. Additionally, tariff-related commodity costs and fluctuating foreign currencies will likely hamper Cummins’ margins.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020? Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>