Deutsche Bank Warns Of A Mid-Cycle Crisis Impacting Cummins

Despite the contraction in Cummins Inc’s (NYSE: CMI) share of the NAFTA heavy-duty truck engine market, there seems to be potential for additional pressure over time, Deutsche Bank’s Nicole DeBlase said in a report. She initiated coverage of the company with a Sell rating and a price target of $111.

Mid-Cycle Crisis

Cummins’ market share for NAFTA heavy-duty truck engines has contracted from the peak level by 16ppts to 29 percent. Analyst DeBlase believes there is potential for another 14ppts of incremental pressure over time. This pressure would be driven by PACCAR Inc (NASDAQ: PCAR) moving towards its internal engine penetration target of 85 percent.

Related Link: Clean Energy Selected As Preferred Vendor For Cummins Facility Modifications

Moreover, Daimler AG (OTCMKTS: DDAIF) is entering the North American market for medium-duty truck engines. Daimler’s DD8 platform, which is the “most viable competition with Cummins’ ISB engine” is expected to be launched in 2018, DeBlase mentioned. She added that this represents “16ppts of long-term market share risk (vs. 75% NAFTA medium-duty share guidance for 2016e).”

The two moves combined translated to a $0.90 mid-cycle EPS downside for Cummins, the analyst stated, while adding that the consensus estimates do not reflect this. She believes there is downside to the company’s shares due to an expected downward revision of EPS forecasts.

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