Cummins (CMI): What's In The Cards This Earnings Season?

Cummins Inc. (NYSE:CMI) is set to report first-quarter 2016 results on May 3. In the last quarter, the company delivered a negative earnings surprise of 1.42%. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

Cummins has the potential to benefit from increased use of its engines by a number of original equipment manufacturers as well as its innovative products. The company’s Distribution segment is poised to gain from the acquisitions undertaken in North America. The company completed 10 acquisitions in the span of over two years. All these should lead to better performance in the quarter to be reported.

However, Cummins expects revenues to decrease in 2016 due to a fall in heavy-duty truck production in North America, weakness in the global off-highway and Power Generation markets, and further strengthening of the U.S. dollar against a number of currencies. The company is facing challenges in its Power Generation business due to weak global demand, mainly for larger units. These factors can adversely affect the quarterly results of the company.

Earnings Whispers

Our proven model does not conclusively show that Cummins is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Cummins’ Earnings ESP is -3.96% because the Most Accurate estimate stands at $1.70, while the Zacks Consensus Estimate is pegged at $1.77.

Zacks Rank: Cummins carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

American Axle & Manufacturing Holdings Inc. (NYSE:AXL) has an Earnings ESP of +7.04% and a Zacks Rank #3. The company’s first quarter 2016 financial results are scheduled for release on May 6.

Ferrari N.V. (NYSE:RACE) has an Earnings ESP of +12.9% and a Zacks Rank #3. The company will report first quarter 2016 financial numbers on May 2.

Nissan Motor Co. Ltd. (OTC:NSANY) – a Zacks Rank #1 (Strong Buy) stock – will report its fourth-quarter and fiscal 2015 (ended Mar 31, 2016) financial numbers on May 12.

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