Investing in Cummins: The Power of Data Centers
At Extreme Investor Network, we are always on the lookout for unique investment opportunities that can provide our members with exceptional returns. Today, we want to highlight the potential earnings upside of investing in Cummins, particularly in relation to the strong demand for backup power supplies in data centers.
According to Morgan Stanley analysts, led by Angel Castillo, Cummins is a top pick with an overweight investment rating. Castillo raised the price target for Cummins to $341, implying a 16% upside from the current level. The increasing demand for backup power supplies in data centers is playing a significant role in driving Cummins’ growth.
Traditionally, data center-related sales were not a major contributor to companies like Cummins and Caterpillar. However, second-quarter earnings have shown a compounding effect on the bottom line due to strong pricing, mix, and incremental margins. This trend is expected to continue as companies expand their capacity to meet the growing demand for backup power in data centers.
Morgan Stanley forecasts that Cummins will see more earnings upside than the market expects over the next few years, especially with plans to double capacity in the next 2-3 years. Castillo raised his earnings per share estimate for Cummins to $20.05 in 2024 and $25 in 2025, surpassing the consensus estimates.
In addition to data centers, Morgan Stanley also highlighted the improved outlook for the North American truck business cycle due to emission regulations and Cummins’ productivity initiatives. This positive outlook further reinforces the case for a compelling risk-to-reward ratio for investing in Cummins.
While Cummins remains the preferred way to play the data center trend, Morgan Stanley also raised its price target for Caterpillar by 7% to $349. However, the equal weight rating was reiterated for Caterpillar in the same call.
Cummins shares have climbed almost 23% this year, reflecting market confidence in the company’s growth potential. As your trusted source for investment insights, Extreme Investor Network recommends keeping a close eye on Cummins for potential earnings upside in the coming years. Stay informed and stay ahead of the market with Extreme Investor Network.
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