As you probably know, Cummins Inc. (NYSE:CMI) and Westport Innovations Inc. (USA) (NASDAQ:WPRT) are on the vanguard of natural gas-fueled trucking. Westport made it through this analysis in far worse shape than Cummins earlier this year, as the effort to convert the world’s diesel-burning transport fleets is still in its infancy. This is less of an issue for Cummins, which is really in a win-win situation in this partnership. If nat-gas engines catch on, Cummins Inc. (NYSE:CMI) is the undisputed manufacturing leader. If the engines remain a marginal part of the global transportation infrastructure, Cummins still holds the pole position in diesel engines, a position it’s built through an impressive sustained double-digit market cap growth rate for more than six decades.
Cummins’ advantage over its rivals became more pronounced recently, when truck maker Navistar International Corp (NYSE:NAV) was transformed from competitor to customer after its engines were found unable to meet EPA standards. Navistar surged today on reports of a better-than-expected turnaround pace, and its retooled engines could again push back against Cummins’ dominance. That should weigh on investors’ minds going forward, as Cummins may see a decline in sales and profits, as Navistar no longer needs to buy its engines out of desperation.
Navistar, however, is deepening its ties to the Cummins-Westport partnership, as its push for more nat-gas trucking relies on the Cummins-Westport engine. Navistar competitor PACCAR Inc (NASDAQ:PCAR) is also using Cummins-Westport engines for its nat-gas initiative in Peterbilt and Kenworth trucks, so it appears that Cummins has this nascent segment locked down for the foreseeable future.
More important to Cummins’ immediate future is the performance of its diesel-dependent engine segment, which accounts for half of revenue and which shrank by 5% in the 2012 fiscal year. Much of those sales come from heavy- and medium-duty trucks and buses, and the global market for these vehicles is projected to grow by 4.3% in 2013. It’s not a great expansion, but Cummins can always beat the industry average by capturing market share from its competitors — provided, of course, that it doesn’t wind up losing share to a retooled Navistar.
Putting the pieces together
Today, Cummins has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.
The article Is Cummins Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.The Motley Fool recommends and owns shares of Cummins, Paccar, and Westport Innovations.
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