Cummins Inc. (CMI) #1 [5]

Cummins, Inc. engages in the design, manufacture, distribution,
and servicing of diesel and natural gas engines, electric power
generation systems, and engine-related products. It operates in
four segments: Engine, Power Generation, Filtration and Other,
and International Distribution. The Engine segment manufactures
and markets a range of diesel and natural gas-powered engines
for the heavy and medium duty truck, bus, recreational vehicle,
light-duty automotive, agricultural, construction, mining,
marine, oil and gas, rail, and governmental equipment markets.
It offers a variety of engine products with displacement from
1.4 to 91 liters and horsepower ranging from 31 to 3,500. The
Power Generation segment provides electric generators; power
systems; and related accessories, components, and services.
These products include diesel and gas generators used in
recreational vehicles, commercial vehicles, and pleasure boats,
as well as diesel and gas generator sets, transfer switches,
and switchgear used in commercial facilities for emergency back-
up and prime power.

Demand for Cummins' engines has been robust recently due to a
strong cyclical upswing in truck sales. Having purchased loads
of trucks in the late 1990s, operators are starting to update
their aging fleets. Also, operators are starting to buy trucks
in advance of 2007 emissions legislation that will increase
costs and may reduce engine performance. This is providing a
substantial, though temporary, boost to Cummins' sales.

The company reported an excellent fiscal second quarter, in
which they posted $2.83 per share, significantly ahead of the
$2.41 Zacks consensus. They also raised guidance for the full
year, going to a range of $10.10 to $10.30, up from the
previously forecasted $9 to $9.20 per share. They are seeing
strength in their engine business as sales of heavy duty truck
sales advanced by 30% due to strong domestic and international
demand. Their power generation segment also performed well,
growing by 7% to $493 million. The company has improved its
cost structure as well, enabling it to convert more of its
sales into profits.

Cummins shares are very attractively valued at about 8x their
new forecasted earnings per share for this year. Estimates have
gone up significantly over the past 90 days. Over that time
period, estimates for the year ending December 2005 have
increased from $9.10 to $10.40 per share. That is an increase
of 14.3%, which is impressive given the company's size. The
stock could experience multiple-expansion due to strong
earnings momentum.