Wolfe Research announced a downgrade of Cummins Inc. (NYSE: CMI), moving the industrial engine maker from an Outperform rating to Peerperform. The firm said the decision reflects limited upside potential after the stock posted substantial gains in recent years. At the time of the note, Cummins was trading at $571.78, roughly 0.97% below its 52-week high of $587.55.
Shares of the company climbed 46% in the previous year, making Cummins the second-best performer within Wolfe Research's coverage universe and outperforming the broader market during 2024. Data from InvestingPro indicate an even stronger performance, with a 58.65% total return over the past year and a 56.2% gain over the last six months.
Wolfe Research originally upgraded Cummins on the thesis that it was an "under-appreciated data center play" and that a cyclical recovery in the Class 8 engine market could provide additional upside. The research note highlighted that Power Generation sales and margins have continued to beat expectations, supporting the company's recent results. InvestingPro assigns Cummins an overall Financial Health Score of 2.99, categorized as "Good."
Despite revising its long-term earnings view upward - Wolfe lifted its 2027 earnings per share estimate by 6% to $32.00, positioning that forecast above consensus - the firm calculated limited price appreciation under realistic valuation scenarios. Even applying what Wolfe described as a "well above historical" 20x price-to-earnings multiple to the raised 2027 EPS yields only about 12% upside from current levels. The stock currently trades at a P/E ratio of 29.66, a metric Wolfe sees as supporting its valuation concerns. InvestingPro's Fair Value assessment also indicates the shares appear slightly overvalued.
Wolfe's analysis found that achieving meaningful upside would require a combination of substantial earnings acceleration - roughly 39% growth over the next two years from record 2025 earnings - and a valuation multiple that sits significantly above historical norms. Given those assumptions, the firm said it would "move to the sidelines" and adopt a Peerperform stance.
Investors can weigh this valuation caution against several company fundamentals and recent operating results. Cummins has raised its dividend for 20 consecutive years and has maintained dividend payments for 55 consecutive years. The company is scheduled to report its next quarterly earnings on February 5, 2026.
On the most recent results, Cummins reported adjusted earnings per share of $5.59, excluding non-cash charges, which topped analyst expectations by about 20%. The company saw strong performance in its distribution and power systems segments, while the engines segment showed some weakness.
Market participants and rival analysts have taken varied positions in response to the company's performance and outlook. Raymond James upgraded Cummins to Outperform and set a price target of $585.00, citing what it described as an attractive risk/reward profile. UBS moved its rating from Sell to Neutral, noting an anticipated bottoming of the truck cycle in 2026 that creates a more balanced risk/reward scenario. Truist Securities upgraded the stock to Buy and raised its price target to $628.00, pointing to growth in the power segment. Bernstein retained a Market Perform rating but increased its price target to $475.00, highlighting continued data center-related growth. Separately, Jefferies upgraded Cummins India to Buy after that business reported EBITDA that exceeded expectations by 16% and showed improved gross margins.
Collectively, these analyst actions reflect a generally positive view on operational trends across Cummins' businesses even as valuation concerns prompted Wolfe Research to step back. The downgrade underscores the tension between strong recent performance, favorable segment results, and stretched multiples that could limit upside absent material earnings expansion.
Key contextual takeaways
- Cummins' recent rally has left the stock trading near its 52-week high and at a P/E multiple of 29.66.
- Wolfe Research raised its 2027 EPS estimate to $32.00 but sees limited upside under conservative valuation scenarios.
- Other firms have taken more bullish stances, with several upgrades and higher price targets driven by power segment strength and data center exposure.
Analyst activity and upcoming catalyst
- Multiple analysts have adjusted ratings and targets: upgrades from Raymond James, UBS, Truist, and Jefferies; Bernstein maintained Market Perform with a higher target.
- Cummins will report next on February 5, 2026, a near-term event that could influence estimates and sentiment.