Diamonds and Dogs

2/4/16

Thanks to today's diamond, we can continue to drive our cars around. Cummins (CMI), known for their engines, is jumping 7% on rather lackluster earnings. Revenue fell more than 6% to $4.77 billion, but better than the steeper 8% drop many analysts were expecting. Net income plunged by nearly two-thirds to $161 million after a large impairment charge and restructuring costs. Among Cummins' major segments, the news was poor across the board. Engine sales fell 11%, cutting operating income by 40% from the year-earlier quarter. Power-generation equipment revenue declined 14% and saw operating income cut in half, and sales of components fell 6%, although that unit managed to increase its operating income by almost 10%. The good news is the valuation is attractive. The stock trades for 12 times reduced estimates. If earnings can stabilize or even improve over the coming year, Cummins might see more capital appreciation.

The retailers continue to struggle. Last fall the retailers blamed Amazon for stealing all their holiday business. Now the unseasonably warm weather is hurting cold weather apparel. Kohl's (KSS) is the dog de jour down 19% after preliminary releasing their earnings and lowering full year guidance to $3.95 to $4.00 a share down from a previous guidance of $4.40 to $4.60. Analysts were expecting earnings of $4.30 a share. The company has not given guidance for 2016, but with the stock down so much, investors don't seem too optimistic.