5 Reasons Wall Street Is Increasingly Bearish on

Cummins Inc. Stock

Source: Cummins

1 On-highway markets peaking?

Visible signs of a slowdown

The world’s second-largest truck company, Volvo AB, warned of a slowdown in the North American truck market in July.

Class 8 truck (key heavy-duty segment) orders fell 21% year over year in September even as cancellations climbed.

Analysts believe the North American on-highway market (trucks, buses) may have now peaked.

How it hurts CumminsCummins’ engines business has significant exposure

to on-highway markets and North America

Source: Cummins Q2 Earnings Presentation

2 Worsening off-highway markets

The concerns

Prices of commodities like oil, coal, iron ore, and crops have slumped further in recent months. Caterpillar slashed its outlook last month because of weaker business conditions, primarily in mining and energy.

Deutsche Bank projects 10%-20% lower industry spending in oil and gas and mining equipment next year.

How it hurts Cummins Cummins gets more than

one-third of its engine revenues from off-highway markets.

Cummins last projected its off-highway engine revenues to fall 12% this year. With nearly every end market slowing down, it could get worse. Cummins’ engine segment sales mix. Source:

Company’s Q2 Earnings Presentation

3 Competition heating up: Can Cummins maintain market share?

Losing its hold Nearly every leading truck manufacturer has vertically

integrated to power its fleet with its own engines.

Cummins’ key customer, Paccar, will start offering its MX-11 engines in trucks in North America next year while expanding the reach of its MX-13 engine.

Deutsche Bank projects Cummins’ North American heavy-duty market share to slip from 36% last year to 32% by 2017.

A looming threat to Cummins

Source: WardsAuto.com

4 Heavy international exposure

Global challenges

Brazil: Proving the toughest market, with heavy-and-medium-duty truck production projected to slump 50% this year.

China: Truck markets slowing down. Last week, Alcoa slashed its outlook, projecting heavy-duty truck production in China to drop 22%-24% this year.

How it hurts CumminsMarkets outside the

U.S./Canada contribute more than 40% to sales.

Cummins last guided 2015 revenue to grow only 2%-4% because of weak international markets. The final numbers could be worse.

Source: Cummins Q2 Earnings Presentation

5 No major emission changes

Emission regulations: A major catalyst

2014 was a particularly strong year for Cummins as sales shot up ahead of the implementation of major global emission

regulations, including:

U.S. Environmental Protection Agency’s greenhouse gas emissions (GHG) programEPA’s Tier 4 final standardsThe European Union's Euro VI emission norms for heavy-duty vehiclesChina's NS IV emission standardsEuro V in Brazil

Why analysts are worried

Cummins’ components business, in particular, could still end 2015 on a strong note as it benefits from delayed standards implementation in Brazil and China.

However, in the absence of major emissions-driven growth catalysts in the near future, Cummins’ sales growth will likely slow down.

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