Cummins Inc. (CMI) shares hit a record intraday high of $297.11 on March 21st as shares are up more than 20% for the year. This surge is driven by growing optimism regarding a revival in global construction and infrastructure projects.
In early March, Cummins won a bullish rating from UBS analysts as the research firm upgraded its rating on Cummins’s stock from Neutral to Buy. UBS noted in its report that the heavy-duty trucking leader is likely to enjoy a surge in demand from truck and machinery manufacturers, potentially driving a 10% to 15% increase in earnings per share (EPS) by 2026.
The upgrades follow Cummins’ fourth quarter financial report that showed revenue grew 10% year-over-year to $8.54 billion. Although soft demand from China led to a worse than expected 8% profit decline, fiscal 2023 EPS was still up 27%. The performance reflects easing trade tensions, increasing North American truck production, and favorable pricing.
Next-gen diesel engine launched
Cummins stands as a global leader in the production of fuel-efficient diesel and gasoline engines. With fuel prices remaining significantly high in comparison to natural gas, manufacturers are increasingly relying on Cummins to enhance the cost-effectiveness of their trucks for end-users. Additionally, the company is benefiting from the escalating environmental regulations implemented by both the U.S. and international governments.
In response to robust demand, Cummins continues to lean on its century-long legacy of innovation. Recently, it introduced the X15 diesel engine, hailed as its most efficient offering for the heavy-duty on-highway market. This engine is compliant with the 2027 Environmental Protection Agency (EPA) standards and is equipped with advanced digital features, including predictive service recommendations, to facilitate fleet management and operations.
Hedge funds are backing up the truck
The financial strength and positive outlook of Cummins is not being ignored by hedge fund managers. In the fourth quarter of 2023, hedge funds acquired a net 426,000 shares of Cummins, elevating their collective ownership to roughly 9.17 million shares. Notably, hedge fund investment in Cummins has surged by over 40% since the fourth quarter of 2022.
This heightened interest from hedge funds in the last quarter saw the entry of three new players— Aristeia Capital, Gotham Asset Management, and Graham Capital Management. Additionally, seven other firms expanded their holdings, including Fisher Asset Management, led by Ken Fisher, which declared a stake valued at $620.7 million. Christopher Niemczewski of Marshfield Associates also increased his investment in Cummins, making it account for more than 5% of his portfolio.
Growing dividend is an attraction
Recently, the Board of Directors announced a cash dividend of $1.68 per share. For 18 consecutive years, Cummins has consistently increased its dividend payments, making it an attractive option for investors focused on income, particularly as the stock reaches new highs.
Over the past decade, the dividend provided by Cummins has grown at a compounded rate of 11.2%, contributing to the stock’s annualized total return of 8.9%. Alongside its promising growth potential linked to worldwide infrastructure investment, Cummins currently provides a forward yield of 2.3%.