Share price of Cummins Inc. CMI increased 1.4% to $109.93 on Mar 29 after the company announced a joint venture with The Olayan Group. The companies will form a 50:50 joint venture company, Cummins Arabia, which will consolidate distribution operations in three countries in the Middle East, namely United Arab Emirates (UAE), Saudi Arabia and Kuwait.
At present, Cummins distributes its products through three different distributors, either owned by Cummins or Olayan. In the UAE, Cummins’ products are distributed through its wholly-owned distributor. On the other hand, the company’s products in Saudi Arabia and Kuwait are distributed through Olayan-owned independent distributors, General Contracting Company (“GCC”) and General Transportation and Equipment (“GTE”) respectively.
The UAE, Saudi Arabia and Kuwait are the largest markets for Cummins in the Middle East. This partnership will help Cummins to expand further in Saudi Arabia and Kuwait. In addition, the joint venture will help in the training and recruitment of more residents in these countries.
Olayan is a leader in the global distribution business. The company has operated for many years in the Middle East. Cummins believes that the partnership will help both companies to expand as well as provide better service to customers. The joint venture will also permit them to achieve greater scale, enhance parts availability and inventory management, and centralize specific functional support across these countries. This in turn will facilitate the delivery of world-class service to consumers.
Cummins Arabia will have its headquarters in Saudi Arabia. The joint venture will start operating from the second half of 2016.
Zacks Rank
Cummins currently carries a Zacks Rank #3 (Hold).
Some better-ranked automobile stocks include Wabash National Corp. WNC, Federal-Mogul Holdings Corp. FDML and Superior Industries International, Inc. SUP. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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