Is A Beat In The Cards For Cummins (CMI) In Q1 Earnings?

Cummins Inc. (NYSE:CMI) is scheduled to report first-quarter 2018 earnings on May 1, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 14.3%. In fact, the company beat estimates in three of the trailing four quarters while missing in one, with an average beat of 13.1%.

In the last three months, shares of Cummins have underperformed the Auto sector. The stock has lost 15.1% compared with the sector’s decline of 9.2% during the period.

Let’s see, how things are shaping up for this announcement.

Cummins Inc. Price and EPS Surprise

Why a Likely Positive Surprise?

Our proven model shows that Cummins is likely to beat on earnings this quarter. That is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — for increasing the odds of an earnings beat.

Zacks ESP: Cummins has an Earnings ESP of +0.48% as the Most Accurate estimate is pegged at $2.93, higher than the Zacks Consensus Estimate of $2.91. A positive ESP indicates that an earnings surprise is likely. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cummins carries a Zacks Rank of 3. This, when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

What’s Driving the Better-Than-Expected Earnings?

Cummins is poised to gain from regular acquisitions, which it undertakes to improve the product line. At the end of January, it announced acquiring Johnson Matthey’s UK automotive battery systems business that focuses on high-voltage automotive-grade battery systems for electric and hybrid vehicles. As part of the collaboration, Johnson Matthey (LON:JMAT) and Cummins will partner to develop high-energy battery materials for commercial heavy-duty applications. This acquisition will widen Cummins’ energy storage and electrification ability. Further, this will help Cummins to become a global leader in electrified power segment.

The company regularly pursues share repurchase programs and dividend payouts to enhance shareholder value. It aims to return 50% of its full-year cash inflow from operations to shareholders through dividends and share repurchases in 2018. However, the same target was achieved in 2017. Recently in March, Cummins paid a dividend of $1.08 to its shareholders.

For the soon-to-be-released quarterly results, the Zacks Consensus Estimate for net sales of Engine segment is pegged at $2.3 billion, almost in line with fourth-quarter 2017 actual net sales.

Similarly, estimates for net sales at the company’s Distribution segment stand at $1.76 billion, up from the fourth quarter’s actual net sales of $1.94 billion.

The Zacks Consensus Estimate for net sales of Components segment stands at $1.58 billion, up from the fourth quarter’s actual net sales of $1.56 billion. The same for net sales in the Power Generation segment is pegged at $958 million, marking a decline from the fourth quarter’s actual net sales of $1.1 billion.

Other Stocks to Consider

Here are a few other stocks worth considering from the same space with the right combination of elements to outpace earnings estimates this time around:

Dorman Products, Inc. (NASDAQ:DORM) has an Earnings ESP of +0.97% and a Zacks Rank #2 (Buy). It is scheduled to report first-quarter 2018 results on May 1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) has an Earnings ESP of +3.45% and a Zacks Rank of 3. It will report first-quarter 2018 results on May 4.

Magna International Inc. (NYSE:MGA) has an Earnings ESP of +1.30% and a Zacks Rank of 3. It is expected to report first-quarter 2018 results on May 10.

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