I liked Cummins (NYSE:CMI) back in February, when the sell-side's predictable doom cycle had price targets (and the share price) below $100 and the shares looked cheap even on modest long-term growth expectations. Since then, the shares have climbed about 20% - in the same ballpark as other commercial vehicle component companies like Allison Transmission (NYSE:ALSN), Dana (NYSE:DAN), and Tenneco (NYSE:TEN).
Now, though, investors are looking at a situation where the company is a little further through the ugly part of the cycle and where margins have held up pretty well, but where the shares now bake in more robust expectations. Cummins still has the wherewithal to do something significant through M&A, but management's caution here is both cause for celebration (being careful to preserve value) and concern (is there a thesis-changing deal out there?). That said, many of Cummins' customers continue to push ahead with internal engine efforts, and I think the risk/reward equation is more balanced today.
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Cummins Seems To Be In A Period Of Transition