1 Reason Cummins Inc. Shares Could Head Higher This Thursday

Cummins (NYSE: CMI  ) investors were expecting a grand opening to the year after the stock hit its 52-week high in late December, but the company's shares have already given up nearly 11% gains year to date. With no negative news coming from the company over the past month, investors must be wondering what's bidding the shares down. They may get an answer Thursday morning when the engine maker reports its fourth-quarter and full-year numbers.

Is Cummins on the right track? Source: Cummins

While Cummins will likely end financial year 2013 on a dour note, key customer PACCAR (NASDAQ: PCAR  ) projects greater truck deliveries and heavy-duty-truck sales this year. So, if Cummins guides well into 2014, its shares could get a lift. But there are several other things that will decide where Cummins is headed this year, so you must know the key numbers to watch for in its upcoming earnings report.

Where is North America headed?
Cummins gets nearly 60% of its engine sales from North America, so look for shipment numbers and the order flow in the upcoming report. PACCAR expects strong replacement demand and improving auto and housing sectors to push industry sales of heavy-duty Class 8 trucks by as much as 13% this year. PACCAR also expects its truck deliveries to improve 5% in the first quarter. This bodes well for Cummins since it gets nearly 10% of its total revenue from PACCAR.

Order updates for the ISX 12G engines, in particular, will be important. The 12-liter engine, built together by Cummins and its long-standing partner, Westport Innovations (NASDAQ: WPRT  ) , reportedly received good response after launch mid-last year. Westport even mentioned the ISX 12G as one the major reasons behind the 51% jump in third-quarter engine shipments from its joint venture with Cummins. Industry experts project ISX 12G deliveries to increase four-fold to 10,000 units this year, which could be a big boost for both Cummins and Westport. It's an important product, so keep an eye on what Cummins has to say in its upcoming call.

One troubling trend and two growth catalysts
As much as the U.S. contributes to Cummins' growth, international markets have an equally big role to play. India was among the weakest markets in 2013, as a result of which income from Cummins' venture with Tata Motors declined substantially. Cummins projects full-year revenue from the market to slip 19%, and any further slowdown could hurt its top-line growth in 2014.

Comparatively, China could be a huge opportunity for Cummins this year if the nation implements the NS IV emission standards. Meanwhile, the European Union's Euro VI emission norms that went effective in January should be a huge positive for Cummins' components business, in particular. PACCAR even reported 42% jump in fourth-quarter revenue from Europe as buyers purchased Euro VI compliant trucks ahead of the implementation. So investors can expect Cummins' components division, which contributes roughly 20% to its total revenue, to outperform other divisions in 2013, as well as 2014.

What will Cummins do with all that money?
In Cummins' upcoming earnings call, I'll also be looking for updates about the progress of its deal with Nissan to supply 5.0-liter V8 turbo diesel engine for its next-generation Titan pickups. Since this engine will mark Cummins' foray into the light-duty-pickup market, it could turn into a big opportunity going forward.

Also, look for any insight into the new products that Cummins has lined up for 2014. One of its investment plans includes buying out its distribution network in North America, for which the company also raised debt to the tune of $1 billion during the third quarter. While that should increase Cummins' quarterly interest expense by roughly $12 million from the fourth quarter onward, the move is also expected to strengthen the company's foothold in the market.

Investors will be interested in knowing whether they can expect greater dividends from Cummins in 2014. With the company having returned nearly half of its operating cash generated over the first nine months of financial year 2013 by way of dividends and buybacks, investors can keep their hopes alive if Cummins projects greater cash flows for the year.

Foolish takeaway
Analysts expect a quiet fourth quarter from Cummins, with flat year-over-year earnings on about 3% drop in revenue. While a beat could push the shares higher on Thursday, Cummins' outlook for 2014 will hold the key to what lies ahead for the company. If you're a Cummins investor, or even a PACCAR or a Westport Innovations investor for that matter, you can't afford to miss this earnings report because it'll have something for each one of you.

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