BUSINESSWEEK ONLINE : NOVEMBER 30, 1998 ISSUE
INSIDE WALL STREET

Will A Euro Buyer Rev Up Cummins?

Shares of Cummins Engine (CUM) in Columbus, Ind., the top producer of diesel engines for trucks, power generation, and construction tractors, haven't been turbocharged. From a 52-week high of 69, the stock is down to 39. Earnings disappointments due to stiff competition have flattened the stock. ''Weaker margins and deteriorating end markets could spell trouble for 1999,'' warns Tobias Levkovich, an analyst at Salomon Smith Barney, who has a hold-neutral rating on Cummins.

Yet some pros have been buying in. Bargain hunting? Well, yes--and they're also betting on fresh rumors that the company is up for sale. They maintain that a big European auto maker is interested in expanding its truck operations in the U.S. and that Cummins is the top target.

Eli Lustgarten of Schroder, a New York investment firm, who has a neutral rating on the stock, notes that ''there have always been rumors about Cummins,'' but he doesn't give them much credence. Levkovich disagrees, he thinks Cummins is on several big companies' takeover target lists. Takeover or no, one investment banker maintains that, at its current price, Cummins is ''awfully cheap''--considering its 10 price-earnings ratio, its book value of $39, and its market leadership. He puts the value of Cummins stock, which hit 83 last year, at 50 a share.

Cummins, which posted sales of $5.6 billion last year, derives nearly 50% of sales from the automotive (mainly truck) markets. Heavy-duty engines account for about half of automotive sales. Earnings in 1999 should dip to $3.40 a share, figures Salomon's Levkovich, from 1998's estimated $3.55. A Cummins spokeswoman says the company isn't looking to be acquired.

BY GENE G. MARCIAL

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