Cummins Inc. ( NYSE: CMI ) shares fell in premarket trading on Wednesday as the firm expects significant downside risk to earnings and softening demand overall.
A note published on Wednesday warned that “near 40% downside risk to consensus earnings” is not appreciated by the market, nor is the extent to which demand could slow in coming months. Demand is anticipated to “slow materially” into 2023, per Bernstein research.
“There are early signs that Cummins's customers will be oversaturated with engine inventory, which will likely erode pricing power and lead to increased revenue cyclicality, all of which will result in lackluster decremental margins over the next 2 years,” the note explained. “We expect this dynamic to play out at a broader scale between components suppliers and OEMs as the downturn gathers pace.”
Given these concerns, the stock was downgraded from “Outperform” to “Market Perform”. Bernstein also reeled in its price target on the stock from $238 to $190, citing significant cuts to EPS estimates for 2023 and 2024 now figured into models.
Cummins shares fell 1.10% shortly after the release of the research in Wednesday’s premarket hours.
For further details see:
Cummins downgraded at Bernstein due to slowing demand