A recent surge in truck orders has done wonders for heavy machinery companies exposed to that sector, with the shares of Allison (ALSN), Cummins (NYSE:CMI), and PACCAR (PCAR) up about 15% to 25% since late September as September Class 8 truck orders set an all-time record and October orders came in strong as well. At the same time, component availability is improving, breaking up production logjams, cost inflation is flattening out, and pricing actions are contributing more significantly.
What happens next is the big question. I’ve been expecting Cummins to do well into the first half of 2023, but I’m concerned that higher interest rates, weaker economic conditions, and a worsening freight market will drive weaker demand. I like the long-term outlook for Cummins, particularly after the Meritor deal and with the company’s growing exposure to decarbonization, but I don’t see such a compelling prospective return relative to the cyclical risk.
Read more here:
Cummins Should Benefit As Production Schedules Normalize, But The Cycle Is A Big Unknown Now
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