UBS sent Cummins shares higher on Monday, upgrading the engine manufacturer to Buy from Neutral and boosting its price target to $850 from $565. The move reflects growing demand for data center backup power and a more favorable North American truck market. Shares of Cummins closed at $672.68, up 3.3% on the New York Stock Exchange.
Data Center Power Demand Drives Growth
The investment bank's call centers on the company's expanding role in providing backup power solutions for data centers. As AI and cloud computing drive surging electricity consumption, data center operators are increasingly turning to Cummins for generators and other equipment to ensure grid reliability. UBS highlighted that this segment is becoming a key earnings driver beyond Cummins' traditional truck engine business.
Strong Earnings Outlook
UBS projects Cummins' earnings per share will climb from $30 in 2026 to $41.25 in 2028, surpassing the consensus estimate of $39.10. The bank sees double-digit growth in the Power Systems unit, fueled by stronger truck demand and new higher-content engines. It also noted that consensus estimates are underestimating upside in both Power Systems and Distribution, with its 2028 EBITDA forecast for these units 6% above the consensus.
Company Raises Long-Term Targets
On May 21, Cummins lifted its 2026 revenue growth target to 8%-11% from a prior range of 3%-8%, and raised its EBITDA margin goal to 17.75%-18.50%. The company's first-quarter revenue rose 3% to $8.4 billion, led by a 19% surge in Power Systems to $2.0 billion. CEO Jennifer Rumsey noted that data center power demand continues to outpace expectations, while North American on-highway markets are recovering.
Competitive Landscape and Risks
Competition is intensifying. Generac has raised its 2026 sales target on increased data center orders, while Caterpillar is benefiting from AI-driven demand for engines and power equipment. However, Paccar, a rival in the truck market, reported a drop in first-quarter revenue despite higher net income. Valuation concerns persist, with GuruFocus labeling the stock overvalued at a GF Value of about $323, well below current trading levels. Risks include tariffs, emissions regulations, supply chain issues, and technological changes. Cummins also recorded a $199 million charge in Q1 from selling its low-pressure fuel cell business, highlighting challenges in some energy transition projects.
Analyst Sentiment
MarketScreener shows an average Outperform rating from 22 analysts, with a prior target of $725.12 before UBS raised the bar to $850, the highest on Wall Street. The upgrade underscores growing investor interest in Cummins as a play on the AI infrastructure boom, blending traditional industrial strength with exposure to the high-growth data center market.
