On Friday, UBS raised the rating for Cummins Inc . stock (NYSE:CMI) to Buy from Neutral, concurrently increasing the price target to $321 from $254. The adjustment reflects a positive outlook on the truck manufacturing cycle, anticipating a peak in demand in 2026 that is not yet fully accounted for in the current stock prices.
Cummins shares are expected to benefit from a projected bottoming out of class 8 truck demand in the second half of 2024, with a subsequent rise to over 350,000 units by 2026. This figure is estimated to be approximately 5% higher than the peak volumes witnessed in 2023. The analyst suggests that this growth, coupled with specific company factors, will likely push margins beyond current consensus and lead to record earnings per share in 2026.
The analyst's predictions are notably more optimistic than the consensus, with expectations of a 10-15% higher EPS for both Cummins and its peer, PACCAR (NASDAQ:PCAR). The report indicates that the consensus may be overly conservative regarding PACCAR's margins on increased revenues and may not be fully recognizing Cummins' potential for growth and specific tailwinds.
UBS's commentary underscores the belief that as market conditions begin to show signs of improvement, investors will likely start valuing the stocks based on the anticipated strong performance in 2026.
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