Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Cummins Stock Jumped 13.5% in June

By Reuben Gregg Brewer - Jul 4, 2019 at 9:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It was a pretty good month, backed by a string of news reports that show the engine maker is successfully changing with the times.

What happened

The shares of engine maker Cummins ( CMI 3.05% ) rose by 13.5% in June, according to data provided by S&P Global Market Intelligence, a little more than twice the increase in the S&P 500 Index. That continued a solid yearlong advance that left the stock 28% higher at the end of the second quarter. The broader market advanced about 17% over the same six-month span. Although there wasn't a specific reason for the solid first-half showing, Cummins has been benefiting from a string of good news -- with a few key updates released in late May and June.

So what

In February, Cummins reported that 2018 sales and EBITDA had both hit record levels, up 16% and 13% respectively. EBITDA was around 14.6% of sales. The 2019 outlook at the time was for sales growth of flat to 4%, with EBITDA at about 15.75% to 16.25% of sales. In other words, the company was looking at a year that was solid, though perhaps not spectacular. 

A candle stick chart with stock quotes in the background

Image source: Getty Images.

In late April the company reported first-quarter earnings. Sales increased 8% and EBITDA hit a record of $1 billion, making up 17.2% of sales, easily besting the earlier projections. Based on these results, Cummins updated its full-year guidance. Although its sales outlook remained the same, it projected that EBITDA would be between 16.25% to 16.75% of sales for all of 2019. Simply put, the business was performing better than originally expected. Investors had a clear reason to be positive about the company's direction. 

Then, in mid-May, it announced that it was expanding its presence in India, a key global growth market that could help drive long-term performance. Shortly after that news, bus builder Gillig and Cummins announced that Gillig's zero-emission electric bus was now available. Cummins' battery electric system is the core of the vehicle, and shows that the engine maker is making important inroads in the EV market as the world shifts toward electric power.

And in late June, it announced that it was buying fuel cell company Hydrogenics, once again showing that it realizes that it needs to branch out beyond carbon-fuel engines. 

Overall, there was not a specific issue that drove the company's performance in June. But with all the positives through the year and the news flow in May and June, it's easy to see why investors were viewing the stock positively last month.

Now what

Cummins is a major player in the heavy vehicle market. There has been concern that its future is tied too closely to older technology -- largely diesel engines. But the core business is clearly doing just fine today, and the company is making the changes necessary to remain relevant as the transportation industry shifts to new technologies. Although the stock isn't exactly a screaming buy, investors may want to put it on their watch lists. A pullback in price that lifts the yield into the 4% range could make it a worthwhile addition for income investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cummins Inc. Stock Quote
Cummins Inc.
$215.50 (3.05%) $6.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.