Cummins Inc. (CMI) is set to report its fourth-quarter 2014 results on Feb 5. In the last quarter, it had posted a positive earnings surprise of 1.75%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Cummins is likely to beat earnings this season because it has the right combination of the two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +1.20%. This is because the Most Accurate estimate stands at $2.53, whereas the Zacks Consensus Estimate is pegged at $2.50. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Cummins currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Cummins’s Zacks Rank #3 and positive ESP make us reasonably confident of a positive earnings beat.
What is Driving the Better-than-Expected Earnings?
For 2014, Cummins expects revenue to grow 10–12% due to the rising demand for its products in North America. Meanwhile, the company expects its 2014 EBIT margin in the 13–13.5% range. Cummins also anticipates earnings to increase at a higher rate than revenues and expects product launches to enhance profitability. These should translate into higher revenues and earnings in the fourth quarter as well.
Cummins is also poised to benefit from its innovative products. The company has been focusing on the production of industry-leading emissions-control technologies and products over the years. Further, Cummins will benefit from the actions taken by the government to enforce the new emission control regulations. The company generated positive earnings surprise in the three of the trailing four quarter, with a positive average surprise of 2.75%,
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
O'Reilly Automotive Inc. (ORLY) has an Earnings ESP of +2.40% and a Zacks Rank #2 (Buy). The company will report its fourth-quarter 2014 results on Feb 4.
American Axle & Manufacturing Holdings Inc. (AXL) has an Earnings ESP of +1.85% and a Zacks Rank #2. The company’s fourth-quarter financial results are scheduled for release on Feb 6.
Group 1 Automotive Inc. (GPI) has an Earnings ESP of +2.27% and a Zacks Rank #3. It will release its fourth-quarter earnings results on Feb 5.
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