Cummins Inc. (CMI), Caterpillar Inc. (CAT), Navistar International Corp (NAV): Commercial-Vehicle Industry Outlook Augurs Well for This Stock

Client Base

Its client base consists of major truck and heavy-vehicle manufacturers such as PACCAR Inc., Daimler Trucks North America, Ford Motor Company (NYSE:F), and International Truck. These players capture around 80% of the world’s commercial vehicle market. In the light-duty on-highway engines segment, Cummins Inc. (NYSE:CMI) supplies Dodge Ram Truck engines to Chrysler, which accounts for 8% of the company’s consolidated sales, making Chrysler the company’s largest customer.

Very strong dividend growth and positive outlook

Though over a significant period the stock movement has been flat and investors might not have gotten the returns they would have expected, the dividend yield and growth are very attractive. Over a period of six years, the dividend has increased by an average rate of 25%. The current yield is 1.7%.

Cummins Inc. (NYSE:CMI) is an analysts’ favorite. Its average target price of about $145 shows a potential upside gain of around 35% from the current price. This optimism is based on the expected growth in demand.

Competitors

Some of the big names that operate in the same industry:

Caterpillar Inc. (NYSE:CAT), operates in two segments, Machinery and Finance. This company is mired more by the demand slump in gold, as the company provides equipment mainly to gold-mining companies. Its 4Q’12 performance was very disappointing. Total revenues were 7% down and EPS was down more than 100% to a level of $1.04, from the $2.32 level in the same quarter last year. However, the dividend is growing at a steady pace of 8-9% Y-o-Y.

Conclusion

Major economies are recovering fast and picking up on their manufacturing activity. This will drive the demand for commercial vehicles and heavy and medium vehicle engines. Cummins has geographical diversification and a client base to take complete advantage of the growth taking place in the economy and the sector. Besides, the company has a strong dividend policy that can hold the investor seeking constant returns. I keep my views bullish on Cummins and expect it to touch a level of $145 by the end of the year.

The article Commercial-Vehicle Industry Outlook Augurs Well for This Stock originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.