TLDR:
Key Points:
- Morgan Stanley recommends Cummins as a top stock pick for playing the AI data center buildout.
- Analyst Angel Castillo raised Cummins’ price target by $2 to $341, implying a 16% upside.
Morgan Stanley analyst Angel Castillo named Columbus, Indiana-based Cummins as a top pick and reiterated an overweight investment rating. Castillo raised the price target for Cummins by $2 to $341, implying a 16% upside from the previous close.
Article Summary:
Morgan Stanley has identified Cummins as a beneficial investment for the AI data center buildout. Castillo mentioned that data center-related growth has a compounding effect on the company’s bottom line. With strong pricing, mix, and incremental margins, the profit impact is greater than the sales number. This trend is expected to continue as companies like Cummins and Caterpillar expand their business to meet the increasing demand for backup power in data centers.
Castillo raised his earnings per share estimates for Cummins in 2024 and 2025, indicating more earnings upside than initially expected by the market. Apart from data centers, an improved outlook on the North American truck business cycle due to emission regulations and Cummins’ productivity initiatives also make a compelling case for a risk-to-reward ratio.
Cummins shares have seen a nearly 23% climb in 2024, with Castillo calling it his favorite pick in the machinery sector. Additionally, he raised the price target for Caterpillar by 7%, but maintained an equal weight rating.