Disconnect Between Analysts and Management Makes Cummins a Buy

Yesterday, an American powerhouse, Cummins Inc. (CMI) reported earnings. By any logically derived measure it was a blowout quarter. Third quarter net income rose 7.6% to $184 million, or $1.84 a share, from $171 million, or $1.69 a share, year over year. Third quarter sales rose 20 + % to $3.37 billion, up from $2.81 billion year over year. More importantly perhaps, Cummins reaffirmed year end guidance of $7.15 - $7.65 per share, making 2007 the most profitable year in the companies history.

Some quick facts about CMI performance: YTD +126.32%, 5 year +984.15%. Yes, almost one thousand percent increase in five years.

Great, so what's the story you ask? Stellar quarter, earnings in...too late to capitalize on now... right? Wrong! Of the nine analysts surveyed by Thompson Financial, the consensus estimate was for earnings of $1.95 per share on revenue of $3.22 billion. Despite accurate guidance from the company, Wall Street set their own price targets, independent of the company (who obviously know their business). The result was an artificially high expectation of Wall Street, leading to a false impression of a company missing expectations.

While Cummins said it remains on pace to meet its full-year earnings guidance of $7.15 to $7.65 a share, Wall Street expects full-year earnings of $7.70 a share. This disconnect between analyst and management is just the opportunity needed for the Growth and Value Trader to jump in! CMI traded as low as $121 in pre-market trading, indicating a deep discount for the day. Those looking for an entry point and great prospects for short to mid-term growth will want to look into CMI. As always do your own due diligence.

Disclosure: none