2023-12-26 19:25:00
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Citi analysts said in their latest report that the settlement between Cummins (CMI) and the U.S. Environmental Protection Agency (EPA) resolved an outstanding issue for the company’s shares. However, the cost of the settlement was higher than expected.
CMI announced last Friday that it had reached an agreement in principle with the EPA and other regulatory authorities regarding emissions certification and regulatory compliance for the engines, which are primarily installed in pickup trucks.
The company plans to report an expense of approximately $2.04 billion in the final quarter of 2023 to address this and other related issues.
“Although difficult to estimate, the spending of approximately $2.04 billion is approximately twice as high as the ‘consensus’ expectation,” noted the analysts, who maintain a buy recommendation and set a target of 244 dollars for the share price. “We expect nearly $1.9 billion in disbursements to be made in the first half of 2024, representing more than half of our estimated free cash flow for Cummins in 2024.”
Citi mentioned that it is not ruling out the possibility of Cummins taking on additional debt to enable the company to adopt a more shareholder-friendly capital distribution approach in 2024.
“In addition, we anticipate the separation of ATMU in early 2024, which should result in a share buyback of approximately 4% at current market value,” they added.
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