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Sunday, 05/13/2001

CUM - Cummins Inc.

Company Description

Cummins Inc. (NYSE:CUM), is the world's largest designer and manufacturer of diesel engines ranging from 55 to 3,500 horsepower. The key markets for these engines are on-highway vehicles, industrial equipment, and power generation. In addition, Cummins provides filtration and acoustic systems, natural gas engines, engine components and electronic systems.

The company operates in three primary business segments: The Engine Business, the Power Generation Business and the Filtration Business. The company has completed a comprehensive product development program and, as a result, has launched new products in nearly every horsepower range. A vital feature of the new product line is the use of electronic controls, software, and information technology to enable customers to manage their businesses more efficiently.

Cummins has product development and manufacturing alliances with several strategic partners including Case, New Holland, IVECO, Komatsu and Scania. Cummins brings unparalleled experience and leadership in engine technology to these alliances. Other alliances have enabled Cummins to expand geographically, in India, China, and many other important markets.

(source: Cummins)

Reasons To Invest

While not nearly as sexy as many technology concerns, we have good reasons to be bullish on shares of Cummins. Similar to our thesis behind Caterpillar (NYSE:CAT), Cummins will benefit from the drastic reduction in interest rates that has taken place so far this year, in addition to an economic recovery should it come. These types of companies that are closely tied to the broader economy are the ones that first rebound when business conditions begin to improve. And judging by preliminary economic data, business conditions are beginning to improve.

Furthermore, as mentioned in the company description, Cummins supplies diesel engines to a variety of manufacturers, including industrial equipment makers. This is of concern because of the looming build out of energy resources in the United States. With the current administration pledging to implement a domestic energy policy, we would expect that exploration and production activity will increase, which will require the use of diesel engines to move the big, heavy equipment that is required for such projects. While this general thought may sound rudimentary, it does hold credence and should positively impact the growth of Cummins over the next several years.

Along with the positive macro developments that should continue to carry shares of Cummins higher, it's important to note that several trends within Cummins industry should also benefit the company. For example, the recent consolidation within the group should give leaders such as Cummins pricing power. In fact, this very topic was the focal point of an upgrade on shares of Cummins recently by analysts at J.P. Morgan.

Finally, to digress from Cummins primary business line in diesel engines, it's worth while to note that the company recently signed a deal with Capstone Turbine (NASDAQ:CPST) to distribute microturbine systems through Cummins' Power Generation Business Unit. These new turbines are expected to be introduced into the marketplace later this year.

DRIP Information:

Shares to Qualify = 1            Accept Foreign Accounts: Yes
Auto-reinvestment  = Yes         Temper Enrollment Serv:  Yes

Min/Max Investment = $10 to $24,000/year
Reinvestment Fees: 
Dividend: 0          Cash: 0           Auto ReInvest: 0

Transfer Agent:

Wells Fargo Bank


Industry Group:       Machinery   52-week high=$44.34
Annual Dividend Per Share=$1.20   52-week low =$27.06
Last earnings 04/15  est= -0.78   actual= -0.68
Next earnings 07-18    est=0.03   versus=1.62
                                  P/E = 28
Analyst Ratings:
Strong Buy    = 2
Moderate Buy  = 0
Hold          = 5
Moderate Sell = 0
Strong Sell   = 0


Copyright 2003

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