JPMorgan Bearish on Cummins as Truck Cycle Peaks

Engine manufacturer Cummins Inc. (CMI) was downgraded by JPMorgan Chase & Co. on concerns about the truck cycle peaking in North America and slow demand in China.

The investment firm downgraded shares to underweight from neutral and lowered its price target to $137 from $156, or to a roughly 3% downside to Thursday’s closing price. Shares of Cummins were down about 0.8% midday Friday near $140.45. (See also: Where to Find Bargain Stock in the S&P 500.)

JPM analyst Ann Duignan said Cummins could feel pressure from a surge in Class 8 truck orders from dealers stocking inventory. That trend is likely to trigger a market peak followed by a “steeper decline” for the industry.

Other Challenges for Cummins

Cummins is also likely to face increased expense in technology investments that are necessary to maintain its competitive edge. It needs to keep up with upgrades required for alternative engines as the industry seems to be moving away from diesel as a fuel.

The move to new drivetrain technologies is “attracting a significant number of new competitors who are well capitalized and post a threat to [Cummins’] core business,” Duignan said in a note to clients.  

Cummins stock is down 17.8% year-to-date.

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