DDAIF Mercedes Benz Group AG (PK)

Moody's Investors Service, the credit rating arm of Moody’s Corp. (MCO), raised the senior unsecured rating of Cummins Inc. (CMI) to “Baa1” from “Baa2”. The upgrade was based on the company’s impressive product portfolio, geographic diversity and effective financial policies.

The rating agency also changed its outlook on Cummins to “positive”, which could lead to another upgrade in the next 12 to 18 months.

Cummins is a leading worldwide designer, manufacturer and distributor of diesel and natural gas engines, electric power generation systems, and engine-related components, fuel systems, controls and air handling systems.

The company’s customer base comprises leading manufacturers, including Chrysler LLC, Daimler AG (DDAIF), Volvo AB, PACCAR Inc. (PCAR), Navistar International Corporation (NAV), CNH Global N.V., Komatsu, Scania AB, Ford Motor Company (F) and Volkswagen AG (VLKAY).

Cummins is positioned to benefit from several trends, such as new emission standards, fuel economy improvement and favorable trends for its Power Generation business. New emission regulations provide lucrative opportunities for the company. However, we are concerned about the strengthening U.S. dollar and the macroeconomic environment around the world.

In the third quarter of 2011, the Zacks #3 Rank (Hold) company posted a 61% increase in profit to $423 million (excluding discrete income tax items) in the third quarter of 2011 from $262 million in the year-ago quarter (excluding pre-tax benefit related to a legal ruling in Brazil).

However, on per share basis, the company missed the Zacks Consensus Estimate of $2.25 despite a 65% increase in profit to $2.20 in the reported quarter from $1.33 in the third quarter of 2010.

Revenues in the quarter rose 36% to $4.63 billion, which was slightly higher than the Zacks Consensus Estimate of $4.60 billion. The improvement in sales and earnings were attributable to strong growth in the company’s key markets, including mining, oil & gas, and North American and Brazilian on-highway as well as favorable construction demand in Asia.

Cummins expects to generate revenues of $17.5 billion–$18 billion for the full year 2011, which represents an increase of over 30% compared with 2010. The company also expects to report earnings before interest and taxes (EBIT) between 14% and 14.5% of sales for 2011 compared with 12.5% in 2010.

 
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