NEW YORK, June 14 /PRNewswire/ -- Cummins Inc. (CMI: $72) has been picked by Standard & Poor's Equity Research as its Focus Stock of the Week. CMI carries S&P's highest investment recommendation of 5-STARS, or Strong Buy.
"We expect Cummins to be a beneficiary of an improving U.S. and global economy over the next year," said Jim Corridore, Equity Industrials Analyst at Standard & Poor's Equity Research. "Our view is that the U.S. economy is set for sustained growth and is at the cusp of an earnings upcycle, though the timing of that recovery is still uncertain. The company's revenue mix among emerging markets should continue to grow over the next few years as well. This well-diversified mix of business also provides some insurance against a potentially slower recovery in North America than we are expecting, since Cummins derives over half of its revenues from outside North America."
Corridore believes the increasing volumes he foresees for the company over the next two years should provide significant leverage in its business model to drive improved margins and strong earnings growth. He thinks that the segments Cummins operates in—truck, industrial and farm equipment engines, power generation equipment, and industrial components—should all see strong improvement if the U.S. economy continues to recover from the 2008-2009 recession.
"We believe the time to buy cyclical stocks like Cummins is typically when earnings are poor, but bottoming, and likely to show improvement in future quarters," said Mr. Corridore. "Investors typically rotate into cyclical stocks in advance of and during a fundamental earnings recovery, and rotate out of them once earnings are peaking. We would argue that earnings bottomed for Cummins in 2009 and that now is the time to be entering the stock in anticipation of improved earnings."
To view a video of Mr. Corridore discussing CMI, paste the following link in to your browser.
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S&P Global STARS Distribution
In North America
As of March 31, 2010, research analysts at Standard & Poor's Equity Research Services North America recommended 35.9% of issuers with buy recommendations, 52.8% with hold recommendations and 11.3% with sell recommendations.
As of March 31, 2010, research analysts at Standard & Poor's Equity Research Services Europe recommended 37.9% of issuers with buy recommendations, 39.3% with hold recommendations and 22.8% with sell recommendations.
As of March 31, 2010 research analysts at Standard & Poor's Equity Research Services Asia recommended 42.9% of issuers with buy recommendations, 49.1% with hold recommendations and 8.0% with sell recommendations.
As of March 31, 2010, research analysts at Standard & Poor's Equity Research Services globally recommended 36.9% of issuers with buy recommendations, 50.1% with hold recommendations and 13.0% with sell recommendations.
5-STARS (Strong Buy): Total return is expected to outperform the total return of a relevant benchmark, by a wide margin over the coming 12 months, with shares rising in price on an absolute basis.
4-STARS (Buy): Total return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis.
3-STARS (Hold): Total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis.
2-STARS (Sell): Total return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price is not anticipated to show a gain.
1-STARS (Strong Sell): Total return is expected to underperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis.
Relevant benchmarks: In North America, the relevant benchmark is the S&P 500 Index, in Europe and in Asia, the relevant benchmarks are generally the S&P Europe 350 Index and the S&P Asia 50 Index.
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