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DJ Investors Are Obsessed With Hydrogen. One Earnings Report Shows Just How Much. -- Barrons.com

· 02/04/2021 16:34
By Al Root

Diesel engine maker Cummins posted fourth-quarter earnings that crushed expectations and provided a solid outlook for 2021. Investors, however, don't seem to care. All they want to talk about is hydrogen.

Cummins (ticker: CMI) on Thursday reported $3.37 in per-share earnings from $5.8 billion in sales. Wall Street was looking for $2.81 in per-share earnings from $5.2 billion in sales. Yet the stock fell on Thursday by about 1.5% to about $232 a share. The S&P 500 and Dow Jones Industrial Average, for comparison, ended the day roughly 1% higher.

Cummins believes sales will grow about 10% in 2021. That's right in line with Wall Street projections, but "management tends to be on the conservative side," points out Cowen analyst Matt Elkott in a Thursday report. He was impressed with earnings, calling the figures and "all-around beat." He rates Cummins stock Hold and has a $239 price target for shares.

One of the problems appears to be analyst don't want to hear about economic recovery and heavy-duty trucks powered by diesel. All eyes are on hydrogen.

Indeed, the word hydrogen came up on the company's fourth-quarter conference call 14 times, according to data service Sentieo. A year ago, that number was five times. Looking at all the earnings conference in 2020, hydrogen came up about 33 times. The comparable number for 2019 is about seven. Hydrogen chatter increased about 370% year over year.

The rise in hydrogen talk at Cummins mirrors the rise in popular hydrogen technology stocks. Plug Power (PLUG) shares, for instance, surged about 970% in 2020. Ballard Power Systems (BLDP) shares rose roughly 225%.

Cummins stock had a nice year in 2020, too, adding about 27%. Still it is nothing like Plug's gain, although Cummins is a far larger and more established company.

Hydrogen is exciting investors because the gas -- when burned or used in a fuel cell -- generates no carbon dioxide, unlike diesel or gasoline. Governments, including the Biden administration, are becoming more interested in incentivizing zero-emission technologies, like hydrogen, to drive down the greenhouse gas emissions blamed for global warming.

Cummins has no intention of being left behind or disrupted into irrelevance, however. The company hosted an event in 2020 to review its hydrogen initiatives, which include producing and dispensing hydrogen, along with hydrogen fuel cell technologies that can supplement or replace diesel engines.

But the hydrogen economy is still a long way off, and 2021, for Cummins, will be about the economic recovery from the Covid-induced slump. The risk/reward in Cummins stock looks fairly balanced on that score. Sales and earnings are growing again, and the stock is trading at about 17 times estimated 2021 earnings. That's a discount to the market's 22 times earnings multiple, but similar to Cummins' recent trading history.

Write to Al Root at allen.root@dowjones.com

(END) Dow Jones Newswires

February 04, 2021 16:34 ET (21:34 GMT)

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