Shares of Cummins rose about 3% in premarket trading on Monday after UBS moved the equipment and power-systems manufacturer from a Neutral to a Buy rating and lifted its price target to $850 from $565. The upgrade reflects UBS's view that the company has stronger growth prospects in its power generation operations and that North American truck-market conditions are improving.
UBS flagged demand for backup power systems used in data centers as a central growth catalyst. The broker said that rising capital expenditures by hyperscale data center operators, together with ongoing capacity expansions by the company, should continue to drive double-digit growth in Cummins' Power Systems and Distribution segments. UBS expects earnings tied to power-related activities to grow faster than current market expectations over the next several years.
The brokerage also pointed to a more constructive outlook for the truck market. Factors cited include improving carrier profitability, an aging vehicle fleet that will require replacement over time, and upcoming emissions regulations that are expected to necessitate new engines with added content. UBS said these dynamics should support earnings growth through 2028, even allowing for a modest slowdown following pre-buy activity that precedes stricter emissions rules.
In its forecast, UBS projects Cummins' earnings per share will increase from about $29.90 in 2026 to $41.25 by 2028, a trajectory the firm said sits above consensus estimates. The brokerage added that the stock's valuation still looks attractive, particularly when compared with peers benefiting from data center and power infrastructure demand, and that the market may be underestimating Cummins' earnings potential.
The note combines the twin themes of data center-driven demand for backup power and improving truck-market fundamentals as the central rationale for the upgrade and higher price target. UBS emphasized capacity expansions and hyperscale operator spending as key supports for the company's power-related revenue outlook.
Context for market participants
- Data center infrastructure spending is presented by UBS as a sustaining source of demand for backup power equipment, underpinning the Power Systems and Distribution segments.
- North American trucking fundamentals - including carrier profitability and aging fleets - are expected to contribute to a multi-year earnings tailwind, albeit with a possible near-term dip after pre-buy activity ahead of emissions regulation changes.
- UBS' EPS forecasts indicate a meaningful rise in profitability over the 2026-2028 period, with projected EPS of about $29.90 in 2026 and $41.25 in 2028.
This combination of drivers led UBS to conclude the company's shares are undervalued relative to their earnings potential, prompting the rating change and price-target increase that were followed by a roughly 3% premarket gain in the stock.