Trinity Industries Inc (TRN), Flowserve Corporation (FLS), Cummins Inc. (CMI): Three Companies For Industrial-Sized Returns

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Navistar agreement and NS4 standard adoption

Navistar International has announced that it will use Cummins Inc. (NYSE:CMI) Selective Catalytic Reduction, or SCR, after treatment technology for medium duty trucks engines. SCR is a cost effective and fuel efficient technology, which helps in reducing emissions. Navistar has been using Cummins Inc. (NYSE:CMI) SCR technology in heavy duty trucks and will begin using it for medium duty trucks in order to meet federal emission regulations.

The production of SCR equipped medium duty trucks will commence in the beginning of 2014, and provide around $350 million in new product sales to Cummins Inc. (NYSE:CMI) in 2014. Navistar’s use of Cummins’ SCR won’t have an immediate impact on EPS, but as the production of medium duty vehicles equipped with SCR increases, an EPS benefit of $0.30 can be expected from 2014 onward.

The adoption of NS4, a Chinese truck emission standard, provides opportunity for Cummins Inc. (NYSE:CMI) to sell more components in China. Chinese cities like Guangzhou, Beijing, and Shanghai are emphasizing enforcement of NS4 regulation. Zhengzhou has already begun enforcement of this standard this month. The total market in China for medium and heavy trucks with 100% NS4 enforcement is around $2 billion. The expected enforcement rate of NS4 in 2014 is 10%. Cummins Inc. (NYSE:CMI)’ NS4 market share will be around 50%, and component revenue in China will rise to $200 million this year and $300 million next year compared to $189 million last year.

Conclusion

Cummins Inc. (NYSE:CMI) agreement with Navistar and NS4 standard adoption in China bodes well for the company’s future.

Trinity Industries Inc (NYSE:TRN)’s joint venture of RIV, with restructuring of interest in TRIP Rail holdings provides good prospects for growth in rail leasing services. Further, increasing railcar orders will enhance revenue of its rail group segment.

Flowserve Corporation (NYSE:FLS)’s new product launch will increase revenue, and capital returning to shareholders will increase investors’ confidence.

All of these stocks are a buy.

The article 3 Companies For Industrial-Sized Returns originally appeared on Fool.com and is written by Madhukar Dubey.

Madhukar Dubey has no position in any stocks mentioned. The Motley Fool recommends Cummins. The Motley Fool owns shares of Cummins. Madhukar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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