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Why Cummins Stock Popped 20.8% in April

By Neha Chamaria – May 11, 2020 at 1:52PM

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COVID-19 pandemic has hit demand for engines hard, but investors still saw value in Cummins stock in April.

What happened

After a 10% fall in March, shares of engines manufacturer Cummins (CMI 2.17%) recovered all of their losses and some in the month of April when their value shot up 20.8%, according to data provided by S&P Global Market Intelligence.

There were two key triggers for the stock: Cummins' partnerships with some big companies in response to COVID-19 and its first-quarter numbers.

So what

The first major announcement came on April 3 when Cummins revealed a slew of tough financial decisions to deal with the COVID-19 pandemic that's hit the transportation sector really hard. For Cummins, trucking is a key end market. Cummins primarily announced pay cuts, including a 50% slash in the CEO's salary, 25% cut in director's compensation, and 10%-25% cut in salaries for all other employees in the U.S.

Cube blocks with percentage rising in upward trend.

Image source: Getty Images.

On April 28, Cummins handily beat analysts' estimates with its first-quarter numbers, although its sales and earnings per share dropped 17% and 19%, respectively, year over year. The earnings sent Cummins' shares soaring double-digit percentages.

In between, Cummins announced a couple of partnerships in April to help deal with the COVID-19 pandemic. One was a partnership with diversified chemicals company DuPont de Nemours (DD 2.32%) to combine their filter technologies to make viable alternatives to N95 respirator masks, the most common particulate-filtering face respirator mask critical for healthcare workers to combat coronavirus but which is in acute shortage worldwide. Cummins said it's already sent first samples to global mask manufacturers to test their effectiveness.

On April 14, Cummins announced it's also partnering with 3M (MMM 1.66%) to produce particulate filters for use in 3M's air-purifying respirators (PAPRs), which again are in shortage worldwide but are a critical protective gear for frontline coronavirus healthcare professionals.

Now what

It's a given that this is a difficult time for Cummins, and the stock's rally in April appears to be more a case of value buying, especially after the stock's drop in March and the government's economic stimulus package. That said, Cummins may have to deal with some tough quarters ahead.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends 3M and Cummins. The Motley Fool has a disclosure policy.

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Stocks Mentioned

3M Company Stock Quote
3M Company
$114.28 (1.66%) $1.87
Cummins Inc. Stock Quote
Cummins Inc.
$207.57 (2.17%) $4.40
DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
$51.25 (2.32%) $1.16

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