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I’m starting to see a new pattern in third quarter earnings reports.  Now to see if it continues through the end of earnings season.

What’s the potential pattern? Companies that announce great earnings but that still don’t measure up to Wall Street expectations. The stocks take a beating after the report even though nothing is wrong with the company except that it didn’t meet inflated expectations.

If this pattern holds up, it would be yet another piece of evidence suggesting that the market is looking for a breather.

Tuesday’s Exhibit A is Cummins (CMI).

Cummins did indeed miss analyst earnings projections for the quarter. The company reported third quarter earnings of $1.33 a share and that was 8 cents a share below the Wall Street consensus.

It was also roughly a 140% earnings increase from the third quarter of 2009. So shoot them.

The company reported revenue of $3.4 billion (Wall Street called for $3.6 billion). That amounted to revenue growth of 34% from the third quarter of 2009. Shoot them again.

What was most impressive in Cummins’ numbers, to me anyway, was that the sales gains were led by the engine segment despite what the company called continued weakness in the North American truck engine market due to the slow economic recovery in the United States and changes in emissions regulations from the EPA. Cummins has repeatedly stated that it doesn’t expect to see a full pick up in engine sales until mid-2011. To me, the current analyst estimates jumped the gun.

One effect of the continued slow recovery in the United States was that sales growth of 56% in non-U.S. markets outpaced sales growth for the company as a whole. Non-U.S. sales account for 63% of revenue for Cummins.

A couple of important events in the quarter don’t show up in earnings. The company raised its dividend by 50% to 26.25 cents per share from 17.5 cents. That strikes me as a pretty forceful vote of confidence by the board of directors about future growth. And in the quarter Standard & Poor’s raised the company’s credit rating to BBB+ from BBB.

I’d look to add to positions in these shares on weakness—after all the best part of the company’s revenue ramp in its truck engine segment is still ahead of it. Anything below $90 seems like a reasonable price to me. As of October 27, 2010, I’m raising my target price a tad to $116 a share by July 2011 from $114 by July. (For more on why I like Cummins for this point in the economic cycle see my post (See my post )

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of the most recent quarter see the fund’s portfolio at )