Investors and analysts always have a game that gets played during earnings season. Traditional investors might just assume that how a company’s stock will act is how a company did versus a year ago or compared to a quarter earlier. The reality is that what really drives how many investors rate a company is how the revenues and earnings compare to the analyst expectations. Then they have to factor in how guidance stacks up against estimates.
24/7 Wall St. has tracked earnings and analyst calls for years. Almost every earnings season there are some stocks that get gutted after what normally would appear to be good or even great earnings. This is quite common among high-growth companies, but it really looks atrocious when huge drops are seen in some of the great companies that have been around for many years.
It is rather important to consider that the stock market has hit all-time high after all-time high. The Dow even broke the 22,000 mark. This is a time that economists, market pundits and many fund managers have warned about the dangers in today’s market valuations. It turns out that companies may currently be targeted by profit takers and short sellers for any report that doesn’t look — particularly if the stock was way up.
The corrections seen here might not seem that grand versus big tech or biotech disappointments. The problem is that the drops seem overdone, and they may represent solid buying opportunities for investors looking for solid companies with defendable earnings growth ahead. Now we just have to see if the GDP growth can get back above 2% and stay there.
In an effort to keep things fairly uniform, we have generally concentrated on earnings per share (EPS), and trading color has been included on how much the stocks had gained ahead of earnings and how they have done since. Also included is past trading data and additional color, as well as consensus estimates on results and on analyst targets from Thomson Reuters.
While management commentary tends to be positive even when things are not so positive, we have also included some of management’s commentary on each report to show that there was a lack of negativity about the business as a whole.
Cummins: Engines Galore Meet Peak Auto
Cummins Inc. (NYSE: CMI) shares were down about 5% after the engine-maker’s second-quarter profit of $2.53 per share was just under expectations (versus $2.40 a year earlier and a $2.58 consensus estimate). Meanwhile revenues rose by 12% to $5.1 billion. The disappointment here was partly tied to higher warranty costs, but Cummins said strong truck and construction demand was allowing it to raise guidance for revenue to rise 9% to 11%, up from a prior 4% to 7% target.
Maybe the worry is peak auto here, but it just wasn’t a disaster. One issue to consider was that Cummins was up 25% so far in 2017. Despite peak auto concerns, analysts expect engine orders and earnings to keep rising.
Cummins shares were recently trading at $156.45, and it has a 52-week range of $116.03 to $170.68. The dividend yield is 2.6%. Cummins Chairman and CEO Tom Linebarger said in his report:
We delivered strong revenue growth in all four operating segments in the second quarter due to improving conditions in a number of important markets where we also have leading share. Earnings increased due to solid operational performance, partially offset by higher warranty costs that resulted in second quarter EBIT that was below our expectations. As a result of stronger than expected orders in truck and construction markets in North America and China, and improving demand from global mining customers we have raised our 2017 full year outlook.