2. Cummins (CMI) builds diesel and natural gas engines, electric power generation systems and related components. Its stock has surged 64% in the past 12 months, outperforming indices. It has corrected 11% in 2011. Cummins' adjusted fourth-quarter earnings advanced 34% to $1.84, beating analysts' consensus estimate by 7.4%. Sales, which rose 22%, exceeded consensus by 5.1%. The gross margin widened from 25% to 26% and the operating margin rose from 9.3% to 11%. Cummins has $1.4 billion of cash and $843 million of debt.
Cummins shares sell for a trailing earnings multiple of 19 and a forward earnings multiple of 11, 21% and 32% discounts to machinery peer averages. Yet, its book value multiple of 4.1 and cash flow multiple of 19 represent premiums. Of stock researchers following Cummins, nine, or 53%, rate its stock "buy" and eight rank it "hold." None rank it "sell." Credit Suisse is the most bullish bank on Wall Street, predicting that Cummins will rally 42% to $139. Goldman expects a rise of 39% to $136. JPMorgan, ranking Cummins "neutral", still expects an advance to $112.
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